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The UK’s four biggest banks would need to raise another £155bn in fresh capital to withstand a new financial crisis, despite the view of the Bank of England Governor that lenders have an adequate cushion to cope with further turmoil. Those are the results of research from three respected financial academics – and add to a growing feeling that the Bank of England is dangerously undercooking its capital requirements on UK lenders in the face of swelling instability in financial markets. UK banks had to be rescued in 2008 and 2009 at massive cost to British taxpayers. Capital represents the shareholder funds in banks available to absorb losses. When losses are greater than the capital cushion the bank is bust and may need to tap state support if deemed to be systemically important by politicians and regulators.

In a new paper Viral Acharya of New York University, Diane Pierret of the University of Lausanne and Sascha Steffen of the University of Mannheim calculate that HSBC, Barclays, Lloyds and the Royal Bank of Scotland would need to raise $185bn (£155bn) of new equity between them to retain a 5.5% capital cushion in a crisis, which is the benchmark of safety used in the past by the European Banking Authority. That sum is not far away from the present market capitalisation of these banks, implying that they are massively overexposed. The EBA’s stress test exercise last Friday showed the UK’s major lenders would see their capital diminished in another European economic crisis, but not below the 5.5% level of so-called “risk-weighted assets” that would have created pressure for more equity injections.

[..] Acharya, Pierret and Steffen argue that the broader European banking sector could be undercapitalised to the tune of around €890bn – a figure they calculated using stock market valuations of banks’ equity rather than the sums reported by lenders themselves. Bank share prices have continued to fall since last Friday’s EBA stress test, implying investors are far from reassured by the fact that most lenders received a clean bill of health from the regulators.

Would it even help anymore?

• Want To Avoid Recession? Then Shower UK Households With Cash (G.)

Just give people the money. Give them cash, dole it out, increase benefits, slash VAT, hand it to those most likely to spend it: the poor. Put £1,000 into every debit account. Whatever you do, don’t give it to banks. They will just hoard it or use it to boost house prices. Britain is suffering from a classic liquidity trap. There is insufficient demand. Yet all the Bank of England did on Thursday was wring its hands, blame Brexit and go on digging the same old holes. They are labelled lower interest rates, quantitative easing and more cash for banks. Those policies have been in place for some seven years. They have failed, failed, failed. Not one commentator yesterday thought cutting interest rates to 0.25% would make any difference to the threat of recession.

Worse, by cutting annuity yields it would impoverish many old people who would otherwise spend. The Bank’s cumbersome monetary bureaucracy was set up to keep inflation under control by curbing bank lending. That failed during the credit crunch. Now it is failing in the opposite direction. Channelling policy through the banks has proved useless in protecting the economy from deflation and recession. The Bank is trapped intellectually in the world in which it lives, that of the City and the banking system. Like chateau generals at the Somme, it never ventures to the economy’s frontline, where buyers meet sellers and generate growth. It thinks of bonds, investments and the only glamour spending it recognises, on infrastructure. It believes that an economy can be regenerated through middle-class home ownership and state mega-projects.

But there is no shortage of funds to invest. Companies, like banks, are awash in cash. The problem is that savers are not spending; if they spend on anything it is on property, and that, too, may now slide. It is irresponsible to await the chancellor’s autumn statement and a political fiddle with tax rates. The engine of the economy must crash into forward gear. Money must be got into bank accounts, cash cards, shops tills and revenues. The plea from 35 economists published in the Guardian this week for “unconventional measures” made only one mistake. It suggested more spending on state infrastructure, which is just spending delayed. Where the economists were right was in suggesting “an immediate increase in household disposable incomes”.

“..the U-6 unemployment number is 10.7% of the nation’s workforce..”

• A Realistic Look at July’s Nonfarm Payrolls (M2)

The Bureau of Labor Statistics (BLS) released its nonfarm payroll data this morning, showing that 255,000 jobs were created in July. The unemployment rate remained at 4.9%. May data was revised up from the eyebrow-raising low number of 11,000 jobs to 24,000 jobs while June was also revised upward from 287,000 jobs to 292,000. That brought the monthly average to 190,000 jobs over the past three months. Unfortunately, drilling down into the more granular details, a far less rosy picture emerges; a picture which is far more consistent with an economy feeling the continued weight of unprecedented wealth and income inequality; a picture that is far more correlated to an economy where “58% of all new income since the Wall Street crash has gone to the top 1%,” to quote Senator Bernie Sanders.

The data for July shows that the U-6 unemployment number is 10.7% of the nation’s workforce, more than double the official number of 4.9%. The U-6 unemployment rate includes the number of people unemployed; plus individuals just marginally attached to the labor force; plus those employed part-time for economic reasons. (The Bureau of Labor Statistics provides the following definition of marginally attached: “Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work.)

But a far bigger problem with the BLS data is what constitutes an “employed” worker to our Federal government’s numbers crunchers. According to the Bureau of Labor Statistics, you could be an out of work MBA graduate but if you help your brother in his deli for 15 hours in a week while living in his home, you’re counted as employed. (The BLS says that a worker who makes no money at all donating his or her services to a family business for 15 hours or more per week is considered employed.)

The US keeps addding more people than jobs.

• The Politically Incorrect Jobs Numbers Everyone is Hushing Up (WS)

On its population clock, the Census Bureau estimates that the US population on August 5, 2016, at 4:49 p.m. ET (yup, down to the minute) was 324.17 million. That’s up from 308.76 million in April 2010. Since the darkest days of the Great Recession, the US population has grown by 15.4 million. The Census Bureau also estimates that there are currently 8.6 births per minute, minus 4.6 deaths per minute, plus 2 arriving immigrants (“net”) per minute, for a gain of nearly 6 folks per minute. Everyone ages, so the young ones move into the labor force, but the baby boomers are fit and healthy and don’t feel like retiring, and so they hang on to their jobs for as long as they can, despite the rampant age discrimination they face in many sectors, particularly in tech, though obviously not in politics.

In 2010, 24% of the people were under 18. That was 74 million people. Millions of them have since moved into the labor force, elbowing each other while scrambling for jobs, as have those millions who were then between 18 and their twenties and in college or grad school. These millennials have arrived on the job market in very large numbers. In April 2010, there were 130.1 million nonfarm payrolls. In today’s July report, there were 144.4 million. Hence, 14.3 million jobs have been added to the economy over the time span, even as the total population has grown by 15.4 million. So that’s not working out very well. On average, 205,300 jobs need to be created every month just to keep up with population growth and not allow the unemployment situation to get worse.

Maybe they should be forced to pay back all their clients and close?

• Hacked Bitcoin Firm Plans To Spread Losses Across All Users (CNBC)

The bitcoin exchange Bitfinex has said it is considering sharing losses among all its users after around $70 million worth of bitcoin was stolen earlier in the week. “We are still working out the details so nothing is set in stone, however we are leaning towards a socialized loss scenario among bitcoin balances and active loans to (bitcoin/dollar) positions,” the Hong-Kong based company said on its website on Friday. Bitfinex revealed it had been hacked on Tuesday and suspended trading, causing prices of the digital currency to fall significantly. A total of 119,756 bitcoins, worth $68 million at current prices, were reportedly stolen as a result of a security breach.

The company added in its latest statement that nothing had yet been decided and it was still settling positions and account balances. Bitfinex’s “socialized loss scenario” most likely means it will distribute its losses among all of the platform’s users, according to Charles Hayter, chief executive and founder of digital currency comparison website CryptoCompare. This would mean users whose bitcoins were never originally stolen would be affected. “In essence, (this is) a haircut for all users on their deposits. To what degree depends on the devil in the details and what the total capital held by BitFinex is,” Hayter told CNBC via email.

A heavily indebted company gets permission to open a bank, to rival another bank that has 25% of its loans off-balance-sheet and non-performing. What could go wrong?

• In China, When in Debt, Dig Deeper (WSJ)

When the going gets tough in China, just get a bank. With profits headed south, heavily indebted Chinese heavy-machinery giant Sany Heavy Industries said this week it won approval to set up a bank in the Hunan province city of Changsha. With 3 billion yuan ($450 million) of registered capital, it will be a relatively large institution as Chinese city-based banks go. Sanyplans to join forces with a pharmaceutical company and an aluminum company.

In recent months several city commercial banks in China have been taken over by the likes of tobacco and travel companies, recapitalized and renamed. Banking licenses are scarce in China, and rarely are new banks set up from scratch. Sany’s Sanxiang Bank will be up and running in six months. It will go up against crosstown rival Bank of Changsha, which at the end of last year had substantial 90 billion yuan book of off-balance-sheet loans, more than a quarter of them nonperforming. Sany had better ramp up quickly.

Comment on the WSJ piece above.

• Only In China: Companies Become Banks To ‘Solve’ Financial Difficulties

China is desperate to solve several problems it has due to its debt to GDP ratio being north of 300%. It may have found a pretty unconventional one by letting companies become banks, according to a report by the Wall Street Journal. “With profits headed south, heavily indebted Chinese heavy-machinery giant Sany Heavy Industries said this week it won approval to set up a bank in the Hunan Province city of Changsha. With 3 billion yuan ($450 million) of registered capital, it will be a relatively large institution as Chinese city-based banks go. Sany plans to join forces with a pharmaceutical company and an aluminum company. Sany already operates an insurance and finance division with the goal of internal financing and insurance services for clients.”

One problem is that companies are defaulting on bond payments and there is no adequate resolution mechanism for bad debts, at least according to Goldman Sachs. “A clearer debt resolution process (for example, how debt restructuring on public bonds can be achieved, how valuation and recovery on defaulted bonds are arrived at, the timely disclosure of information and clarity on court-sanctioned processes) would help to pave the way for more defaults, which in our view are needed if policymakers are to deliver on structural reforms,” the investment bank writes in a note. By becoming or owning banks, the companies can just shift debt around different balance sheets to avoid a default, although this is probably not the resolution that Goldman Sachs had in mind when talking about structural reforms.

Another problem is that the regime has more and more difficulties pushing more debt into the economy to grease the wheels and keep GDP growth from collapsing entirely. China needs 11.9 units of new debt to create one unit of GDP growth. At the same time, the velocity of money or the measure of how often one unit of money changes hands during a year has fallen to below 0.5, another measure of how saturated the economy is with uneconomical credit. If the velocity of money goes down, the economy needs a higher stock of money to keep the same level of activity.

Kathimerini is going off the rails, as are a group of Greeks. Accusing Varoufakis and Galbraith of planning a military coup is so far beyond the pale, it’s reason to look at legal action.

• Galbraith Says Critics Have It All Wrong Over Greece ‘Plan X’ (Kath.)

University of Texas professor James Galbraith, a close associate of Yanis Varoufakis, has urged the 23 US-educated Greeks who recently criticized him for his part in last year’s negotiations with Greece’s creditors to read his book. Galbraith’s response came in the form of a letter to Kathimerini, which had published a story on July 29 on the letter from the 23 academics, addressed to the president of the University of Texas. In his own letter, Galbraith mentions the fact that his critics say they learned of his work as head of the team that worked on the so-called “Plan X” from interviews in the Greek press and excerpts of the Greek translation of his book, “Welcome to the Poisoned Chalice” (Yale University Press).

He asks why, given their knowledge of English, they did not read the original: “Had they done so, they would have found that the allegations they made are factually false.” Galbraith characterizes Plan X as “preliminary,” admitting that “the work of a small team cannot fully prepare for such a dramatic event.” He repeats that it would only have been activated if the Europeans had carried out their threat to cut off emergency liquidity via the ECB to Greek banks. “This would have triggered a forced exit of Greece from the euro, against the will of the government,” he notes. “The threat had been delivered by the president of the Eurogroup, Jeroen Dijsselbloem, in late January,” he adds, mentioning also the suggestion by German Finance Minister Wolfgang Schaeuble that Greece take a “holiday from the euro.”

Galbraith further rejects the claim made by the 23 that his plan constituted a “monetary-cum-military coup d’etat” and that it would involve “mobilizing the Greek armed forces to suppress possible civil disorder.” “We did not suggest using the military inappropriately or outside the Constitution. The only use of the word ‘mobilization’ in my book refers to the civil service.” He also denies that the plan included a plot to arrest the governor of the central bank. The memo on Plan X, as Galbraith repeats in his letter, “was prepared at the request of the prime minister” and “at no time was the working group engaged in advocating exit or any policy choice. The job was strictly to study the operational issues that would arise if Greece were forced to issue scrip or if it were forced out of the euro.”

Finally, Galbraith responds to claims in the letter from the 23 that he regretted the non-activation of Plan X. “This claim also is false,” he writes, making reference to his interview with Kathimerini on July 6, 2016, in which he had stated that “we were preparing for a scenario that everyone hoped to avoid.”

“..even as an expert on economic and organized crime, I was amazed to see so much of what we talk about in theory was confirmed in practice..”

• Stiglitz Quits Panama Papers Probe, Cites Lack Of Transparency (R.)

The committee set up to investigate lack of transparency in Panama’s financial system itself lacks transparency, Nobel Prize-winning economist Joseph Stiglitz told Reuters on Friday after resigning from the “Panama Papers” commission. The leak in April of more than 11.5 million documents from the Panamanian law firm Mossack Fonseca, dubbed the “Panama Papers,” detailed financial information from offshore accounts and potential tax evasion by the rich and powerful. Stiglitz and Swiss anti-corruption expert Mark Pieth joined a seven-member commission tasked with probing Panama’s notoriously opaque financial system, but they say they found the government unwilling to back an open investigation.

Both quit the group on Friday after they say Panama refused to guarantee the committee’s report would be made public. “I thought the government was more committed, but obviously they’re not,” Stiglitz said. “It’s amazing how they tried to undermine us.” The Panamanian government defended the committee’s “autonomous” management in a statement issued later on Friday, and while it said it regretted the resignations of Stiglitz and Pieth, it chalked them up to unspecified “internal differences.”

[..] In addition to embarrassing leaders worldwide who had interests tied to secretive business concerns, the leak heaped pressure on Panama, well-known for its lax financial laws, to clean up its act. “I have had a close look at the so called Panama Papers, and I must admit that even as an expert on economic and organized crime, I was amazed to see so much of what we talk about in theory was confirmed in practice,” Pieth said in a telephone interview. In the papers he said he found evidence of crimes such as money laundering for child prostitution rings. “We’re being asked to do this as a courtesy for them and we’re paraded in front of the world media first, and then we’re told to shut up when they don’t like it,” Pieth, a criminal law professor at Basel University, said.

Long and strong summary by Kristi Culpepper. Damning.

• Is Hillary Clinton Corrupt? An Archive of Financial Improprieties (Medium)

[..] Under Clinton’s leadership, the State Department approved $165 billion worth of commercial arms sales to 20 nations whose governments have given money to the Clinton Foundation, according to an IBTimes analysis of State Department and foundation data. That figure – derived from the three full fiscal years of Clinton’s term as Secretary of State (from October 2010 to September 2012) – represented nearly double the value of American arms sales made to the those countries and approved by the State Department during the same period of President George W. Bush’s second term.

The Clinton-led State Department also authorized $151 billion of separate Pentagon-brokered deals for 16 of the countries that donated to the Clinton Foundation, resulting in a 143% increase in completed sales to those nations over the same time frame during the Bush administration. These extra sales were part of a broad increase in American military exports that accompanied Obama’s arrival in the White House. The 143% increase in U.S. arms sales to Clinton Foundation donors compares to an 80% increase in such sales to all countries over the same time period.

[..] It’s really not all that difficult to see why Clinton hasn’t given a press conference in 244 days and avoids the media at her campaign events, is it? Asking her to explain every ethically questionable deal she has been involved in would probably take longer than the State Department requires to vet her emails.

In just 20 years. Wow.

• Average American 15 Pounds Heavier Than 20 Years Ago (HDN)

There’s no doubt about it: Americans are getting heavier and heavier. But new U.S. estimates may still come as a shock – since the late 1980s and early 1990s, the average American has put on 15 or more additional pounds without getting any taller. Even 11-year-old kids aren’t immune from this weight plague, the study found. Girls are more than seven pounds heavier even though their height is the same. Boys gained an inch in height, but also packed on an additional 13.5 pounds compared to two decades ago. When looked at by race, blacks gained the most on average. Black women added 22 pounds despite staying the same average height. Black men grew about one-fifth of an inch, but added 18 pounds, the study found.

[..] According to the report, the average weight of men in the United States rose from 181 pounds to 196 pounds between 1988-1994 and 2011-2014. Their average height remained the same at about 5 feet, 9 inches. The average woman, meanwhile, expanded from 152 pounds to 169 pounds while her height remained steady at just under 5 feet, 4 inches.

Debt Rattle June 7 2016

Jun 072016

June 7, 2016 Posted by Raúl Ilargi Meijer at 8:29 am Finance Tagged with: coral, debt, downgrade, Hillary, jobs, NATO, nuclear, rates, shadow, sterling, TPP, volatility 9 Responses »

Esther Bubley Soldiers with their girls at the Indianapolis bus station 1943

• This Job Market Slump Started In January

• Yellen Sees Rates Rising Gradually But .. (BBG)

• The Shadow Looming Over China (Balding)

• Nation of Debt: New Zealand Sitting on Half-Trillion-Dollar Debt Bomb (NZH)

• Sterling Swings Wildly As Polls Suggest UK Heading For EU Exit (G.)

• S&P Downgrades Royal Bank of Canada Outlook (WSJ)

• Goldman Probed Over Malaysia Fund 1MDB (WSJ)

• This Fannie-Freddie Resurrection Needs To Die (WaPo ed.)

• State Department Blocks Release Of Hillary Clinton’s TPP Emails (IBT)

• Debt Buyers (John Oliver)

• Taxes And Recession Slash Income Of Greek Households (Kath.)

• Nausea Rising (Jim Kunstler)

• NATO Countries Begin Largest War Game In Eastern Europe Since Cold War (G.)

• Finns To Bury Nuclear Waste In World’s Costliest Tomb (AFP)

• Great Barrier Reef: The Stench Of Death (G.)

And this is Yellen’s favorite index?! Makes you wonder.

• This Job Market Slump Started In January

The sharp May hiring slowdown revealed in Friday’s employment report took a lot of people – including me – by surprise. It shouldn’t have. Things have actually been on the downswing for the U.S. labor market for months, according to the Federal Reserve’s Labor Market Conditions Index. The LMCI is a new measure cooked up by Federal Reserve Board economists in 2014 that consolidates 19 different labor market indicators to reflect changes in the job market. They calculated it going all the way back to 1976; the chart above shows its movements since the end of the last recession in June 2009. The May index, released Monday morning, showed a 4.8-point decline from April. As you can see from the chart, the index has now declined for five straight months — its worst performance since the recession.

The index does get revised a lot. When the January number was first reported on Feb. 8, for example, it was still modestly positive. Still, since the February number was released on March 7 the news from the LMCI has been unremittingly negative. Which probably should have told us something. Not many people were paying attention, though. Fed Chair Janet Yellen is apparently a fan of the LMCI, but I have to admit that I first learned of its existence Monday when Erica Groshen, the Commissioner of the BLS, mentioned it at a conference for BLS data users in New York. It was a good reminder, as were a lot of the other presentations at the conference, that the headline jobs numbers that get the lion’s share of attention – the monthly change in payroll employment and the unemployment rate – aren’t always the best places to look for information on the state of the jobs market.

They should really start having her do these speeches in a cave filled with smoke and vapors.

• Yellen Sees Rates Rising Gradually But .. (BBG)

Federal Reserve Chair Janet Yellen said the U.S. economy was making progress but was silent on the timing of another interest-rate increase, an omission viewed as a signal that a June move was off the table. “I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run,” Yellen said Monday during a speech in Philadelphia. Her comments were less specific than in her previous remarks in describing when she thought the Fed should raise rates again.

On May 27 at Harvard University, she said an increase would likely be appropriate in “coming months,” a phrase she didn’t repeat on Monday. Since then, the Labor Department reported U.S. employers in May added the fewest number of new jobs in almost six years, causing expectations for a rate increase to plunge. “She did not address the timing of the Fed’s next gradual move, which suggests to us that she is in no hurry,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd, arguing that her comments on the payroll report “largely rules out a move in rates next week. July is not a strong bet either.”

Beijing has not just allowed shadow banks to grow much too big, it has used this growth to hide its actions behind. Local governments got most of their credit to build highways to nowhere from shadow banks. It’s really weird that the western press only catches on now.

• The Shadow Looming Over China (Balding)

Of all the topics sure to be come up in Sino-U.S. economic talks this week – from the problem of excess capacity to currency controls – the health of China’s financial sector will no doubt feature high on the list. Especially worrying are the multiplying links between the country’s commercial and “shadow” banks – the name given to a broad range of non-bank financial institutions from peer-to-peer lending platforms to trusts and wealth management companies. All told, the latter now hold assets that exceed 80 percent of China’s gross domestic product, according to Moody’s – much of them linked to the commercial banking sector in one way or another. That poses a systemic threat, and needs to be treated as such. There’s nothing inherently wrong with shadow banks, of course.

Largely owned by the government, China’s commercial banks focus primarily on directing capital from savers to state-owned enterprises, leaving Chinese households and smaller private enterprises starved for funds. Shadow banks have grown to meet the demand. At their best, they allocate capital more efficiently than state-owned lenders and keep afloat businesses that create jobs and growth. The line between good shadow banks and dodgy ones is increasingly fuzzy, however, as is the divide between shadow and commercial banking. Traditional banks often assign their sales teams to sell shadow products. This gives an unwarranted sheen of legitimacy to schemes that are inherently risky. Buyers trust that the established bank will make them whole if their investment goes south.

Shadow banks are also selling more and more products directly to commercial banks. Wealth management products held as receivables now account for approximately 3 trillion yuan of interbank holdings, or around $500 billion — a number that’s grown sixfold in three years. According to Autonomous Research, as much as 85 percent of those products may have been resold to other shadow banks, creating a web of cross-ownership with disturbing parallels to the U.S. mortgage securities market just before the 2008 crash. In total, the big four state-owned banks hold more than $2 trillion in what’s classified as “financial investment,” much of it in trusts and wealth-management products.

A nation of lost souls.

• Nation of Debt: New Zealand Sitting on Half-Trillion-Dollar Debt Bomb (NZH)

New Zealand is sitting on a half-a-trillion-dollar debt bomb and Kiwis are increasingly treating their houses like cash machines, piling on the debt as they watch the value of their properties soar. Reserve Bank figures show household debt, excluding investment property, has risen 23% in the past five years to $163.4 billion. Incomes have risen only 11.5%. Households are now carrying a debt level that is equivalent to 162% of their annual disposable income – higher than the level reached before the global financial crisis. Including property investment the total debt households owed as of April was $232.9 billion, according to the Reserve Bank. Satish Ranchhod, a senior economist at Westpac Bank, says the main driver has been low interest rates.

“Continued low interest rates have sparked a sharp increase in household borrowing at a time when income growth has been very modest.” And it’s housing loans where the growth has mainly come from. Housing loan debt has risen 23.4% to $132.83 billion. Student loans were up 22.9% to $14.84 billion and consumer loans are up 16.6% to $15.7 billion. Ranchhod said much of the rising debt on housing was down to investors, as more people jumped into the property market on the back of rising house prices. He also believed many people were using their home loans to make consumer purchases. “We think a lot of the increase in lending on housing loans will also be an increase in spending … people feel wealthy when the value of their home goes up.”

Hannah McQueen, an Auckland financial coach and managing director of EnableMe, said she had seen three clients in the past week alone who had paid for a new car by using the equity in their home to increase their mortgage debt. “It’s definitely on the increase … People think, ‘I’m worth so much more now …'”

Volatility just getting started.

• Sterling Swings Wildly As Polls Suggest UK Heading For EU Exit (G.)

The pound swung wildly on currency markets on Monday, reaching extremes of volatility not seen since the financial crisis, as City traders reacted to polls suggesting voters were increasingly likely to send Britain out of the EU this month. The poll boost to the Vote Leave campaign sent the pound tumbling by up to 1.5 cents to below $1.44, adding to a decline of 2 cents last week and indicating the degree of pressure on the UK currency since the remain camp’s lead in the polls began to evaporate. A dovish speech by the US central bank chief, Janet Yellen, hinting that poor jobs data meant the Federal Reserve was unlikely to raise rates this month, steadied the pound – despite her comments that a vote to leave the EU could hurt the US economy.

“One development that could shift investor sentiment is the upcoming referendum in the United Kingdom. A UK vote to exit the European Union could have significant economic repercussions,” she said. Sterling’s value has become increasingly volatile as fears of a Brexit have increased among investors. The index charting the daily swings in the pound’s value has risen to its highest level of volatility since the first quarter of 2009. It is double the level seen in April when the remain camp was ahead in the polls. Elsa Lignos, a foreign exchange expert at City firm RBC, one of many to warn that the pound would come under further pressure should the lead established by Vote Leave be consolidated, said: “Brexit is almost all that matters for the pound at the moment.”

Hmm.. “..speculative-grade borrowers..”, “..highly indebted Canadian consumers ..”

• S&P Downgrades Royal Bank of Canada Outlook (WSJ)

Standard & Poor’s is downgrading the outlook for Royal Bank of Canada, a change it says reflects the lender’s increased risk appetite and credit-risk exposure relative to other domestic banks. The credit-ratings firm said Monday it was revising its outlook on RBC, Canada’s largest bank by assets, to “negative” from “stable,” but would leave its credit ratings untouched. The move comes less than two weeks after the Toronto-based lender reported a stronger-than-expected fiscal second-quarter profit but set aside bigger provisions to cover soured loans. “The outlook revision reflects concerns over what we see as RBC’s higher risk appetite, relative to peers,” said S&P credit analyst Lidia Parfeniuk in a release.

“We see one example of this in its aggressive growth in loans and commitments in the capital markets wholesale loan book, particularly in the U.S., with an emphasis on speculative-grade borrowers, including exposure to leveraged loans,” she added. S&P also pointed to RBC’s “higher-than-peer average exposure” to highly indebted Canadian consumers and to the country’s oil- and gas-producing regions, which have been hard hit by the collapse in crude-oil prices. S&P, however, affirmed RBC’s ratings including its “AA-/A-1+” long- and short-term issuer credit ratings. “RBC is one of the strongest and highest rated banks in Canada, reflecting our strong financial profile and the success of our diversified business model,” said RBC in an emailed statement. “This outlook change will have no direct impact to RBC clients,” it later added.

“..Goldman wired the $3 billion in proceeds to a Singapore branch of a small Swiss private bank instead of to a large global bank, as would be typical for a transfer of that size..”

• Goldman Probed Over Malaysia Fund 1MDB (WSJ)

U.S. investigators are trying to determine whether Goldman Sachs broke the law when it didn’t sound an alarm about a suspicious transaction in Malaysia, people familiar with the investigation said. At issue is $3 billion Goldman raised via a bond issue for Malaysian state investment fund 1Malaysia Development Bhd., or 1MDB. Days after Goldman sent the proceeds into a Swiss bank account controlled by the fund, half of the money disappeared offshore, with some later ending up in the prime minister’s bank account, according to people familiar with the matter and bank-transfer information viewed by The Wall Street Journal. The cash was supposed to fund a major real-estate project in the nation’s capital that was intended to boost the country’s economy.

U.S. law-enforcement officials have sought to schedule interviews with Goldman executives, people familiar with the matter said. Goldman hasn’t been accused of wrongdoing. The bank says it had no way of knowing how 1MDB would use the money it raised. Investigators are focusing on whether the bank failed to comply with the U.S. Bank Secrecy Act, which requires financial institutions to report suspicious transactions to regulators. The law has been used against banks for failing to report money laundering in Mexico and ignoring red flags about the operations of Ponzi scheme operator Bernard Madoff. The investigators believe the bank may have had reason to suspect the money it raised wasn’t being used for its intended purpose, according to people familiar with the probe.

One red flag, they believe, is that Goldman wired the $3 billion in proceeds to a Singapore branch of a small Swiss private bank instead of to a large global bank, as would be typical for a transfer of that size, the people said. Another is the timing of the bond sale and why it was rushed. The deal took place in March 2013, two months after Malaysia’s prime minister, Najib Razak, approached Goldman Sachs bankers during the annual meeting of the World Economic Forum in Davos, Switzerland. And it occurred two months before voting in a tough election campaign for Mr. Najib, who used some of the cash from his personal bank account on election spending, the Journal has reported, citing bank-transfer information and people familiar with the matter.

This being from the mouthpiece WaPo, g-d only knows what’s behind it.

• This Fannie-Freddie Resurrection Needs To Die (WaPo ed.)

It’s been said that Washington is where good ideas go to die. We don’t know about that, but some bad ideas are certainly hard to get rid of. Consider the persistent non-solution to the zombie-like status of Fannie Mae and Freddie Mac known as “recap and release.” The plan is to return the two mortgage-finance giants to their pre-financial-crisis status as privately owned but “government-sponsored” enterprises. That is to say, to recreate the private-gain, public-risk conflict that helped sink them in the first place. Their income would recapitalize the entities, rather than be funneled to the treasury, as is currently the case. Then they could exit the regulatory control known as “conservatorship” that has constrained them since 2008 — and resume bundling home loans and selling them, as if it had never been necessary to bail them out to the tune of $187 billion in the first place.

Congress last year effectively barred recap and release, at least for the next two years. Coupled with the Obama administration’s firm opposition, you’d think that would put a stake through its heart. But “no” is not an acceptable answer for the handful of Wall Street hedge funds that scooped up Fannie and Freddie’s beaten-down common stock for pennies a share after the bailout — and would realize a massive windfall if the government suddenly decided to let shareholders have access to company profits again. With megabillions on the line, the hedge funds have been arguing high-mindedly that their true concerns are property rights and the rule of law; they have also made common cause with certain low-income-housing advocates who see a resurrected Fan-Fred as a potential source of funds for their programs.

Left unexplained, because it’s inexplicable, is how the hedge funds’ arguments square with the fact that there wouldn’t even be a pair of corporate carcasses to fight over but for the massive infusion of taxpayer dollars and the public risk that represented. The latest iteration of recap and release is a hedge-fund-backed bill sponsored by Rep. Mick Mulvaney (R-SC), which would set Fannie and Freddie, unreformed, loose on the marketplace again and do so under terms wildly favorable to the hedge funds. Specifically, shareholders would be charged nothing for the government backing the entities would retain, supposedly to save scarce resources for the capital cushion. But as the WSJ recently noted, capital could be “risk-weighted” so forgivingly that the actual cushion required might be considerably less than headline numbers suggest.

Desperate move.

• State Department Blocks Release Of Hillary Clinton’s TPP Emails (IBT)

Trade is a hot issue in the 2016 U.S. presidential campaign. But correspondence from Hillary Clinton and her top State Department aides about a controversial 12-nation trade deal will not be available for public review — at least not until after the election. The Obama administration abruptly blocked the release of Clinton’s State Department correspondence about the so-called Trans-Pacific Partnership (TPP), after first saying it expected to produce the emails this spring. The decision came in response to International Business Times’ open records request for correspondence between Clinton’s State Department office and the United States Trade Representative. The request, which was submitted in July 2015, specifically asked for all such correspondence that made reference to the TPP.

The State Department originally said it estimated the request would be completed by April 2016. Last week the agency said it had completed the search process for the correspondence but also said it was delaying the completion of the request until late November 2016 — weeks after the presidential election. The delay was issued in the same week the Obama administration filed a court motion to try to kill a lawsuit aimed at forcing the federal government to more quickly comply with open records requests for Clinton-era State Department documents.

Clinton’s shifting positions on the TPP have been a source of controversy during the campaign: She repeatedly promoted the deal as secretary of state but then in 2015 said, “I did not work on TPP,” even though some leaked State Department cables show that her agency was involved in diplomatic discussions about the pact. Under pressure from her Democratic primary opponent, Bernie Sanders, Clinton announced in October that she now opposes the deal — and has disputed that she ever fully backed it in the first place.

John Oliver buys $15 million of unpaid debt for $60,000. And then forgives it. Now there’s an idea. Unless I’m very mistaken, that means $1 million could forgive $250 million in debt. $10 million, you free $2.5 billion in debt. Well, quite a bit more, actually, because now we’d be talking wholesale. People raise a millon bucks for all sorts of purposes all the time. Know what I mean?

Someone get this properly organized in a fund, and why wouldn’t they (?!), means: You donate $1 and $250 in debt goes away. Donate $100 and $25,000 goes up in air. 100 people donate $100 each, $2,500,000 in debt is gone. I’m not the person to do it, but certainly somebody can?! (Do call me on my math if I missed a digit..). It’s crazy people like Bill Gates or Mark Zuckerberg are not doing this. Or even Janet Yellen. Not all that smart after all, I guess. $1 billion can buy off $250 billion in debt. Want to fight deflation?

• Debt Buyers (John Oliver)

How to make sure an economy and society cannot recover.

• Taxes And Recession Slash Income Of Greek Households (Kath.)

The avalanche of new taxes that began this month will deal a devastating blow to household incomes, consumption and the prospects of the Greek economy in general. As the dozens of new measures are implemented, the market will also be forced to deal with the higher charges that will strengthen the lure of tax evasion. All this is expected to extend the recession and deter investment, while leading to more business shutdowns. Crucially, the disposable income of households will shrink anew due to the increase in taxation and the hikes in almost all indirect taxes and social security contributions.

Hundreds of thousands of families are cutting down on their basic expenses while many have run into debt over various obligations: For example, unpaid Public Power Corporation bills now total €2.7 billion. All that has resulted in major drop in retail spending. A consumer confidence survey carried out by Nielsen for the first quarter of the year shows that eight out of 10 Greeks are constantly attempting to reduce their household expenditure. Their main targets for cuts are going out for entertainment and food delivery, while they are buying cheaper and fewer groceries.

JHK: “As you may know, Kunstler.com is currently under an aggressive Denial of Service (DoS) attack. My web and server technicians are working to get the website and blog back up and live soon (though it’s going to cost a pretty penny). In the meantime, here is today’s blog. Please share this with any of your friends so they don’t miss out.”

• Nausea Rising (Jim Kunstler)

The people of the United States have real grievances with the way this country is being run. Last Friday’s job’s report was a humdinger: only 38,000 new jobs created in a country of over 300 million, with a whole new crop of job-seeking college grads just churned out of the diploma mills. I guess the national shortage of waiters and bartenders has finally come to an end. What’s required, of course, is a pretty stout restructuring of the US economy. And that should be understood to be a matter of national survival. We need to step way back on every kind of giantism currently afflicting us: giant agri-biz, giant commerce (Wal Mart etc.), giant banking, giant war-making, and giant government — this last item being so larded with incompetence on top of institutional entropy that it is literally a menace to American society.

The trend on future resources and capital availability is manifestly downward, and the obvious conclusion is the need to make this economy smaller and finer. The finer part of the deal means many more distributed tasks among the population, especially in farming and commerce operations that must be done at a local level. This means more Americans working on smaller farms and more Americans working in reconstructed Main Street business, both wholesale and retail. This would also necessarily lead to a shift out of the suburban clusterfuck and the rebuilding of ten thousand forsaken American towns and smaller cities.

For the moment, many demoralized Americans may feel more comfortable playing video games, eating on SNAP cards, and watching Trump fulminate on TV, but the horizon on that is limited too. Sooner or later they will have to become un-demoralized and do something else with their lives. The main reason I am so against the Hillary and Trump, and so ambivalent on Bernie is their inability to comprehend the scope of action actually required to avoid sheer cultural collapse.

Completely crazy. Is Trump really the only person who can stop this? For the first time since the Nazi invasion of Soviet-occupied Poland began on 22 June 1941, German tanks will cross the country from west to east.

• NATO Countries Begin Largest War Game In Eastern Europe Since Cold War (G.)

The largest war game in eastern Europe since the end of the cold war has started in Poland, as Nato and partner countries seek to mount a display of strength as a response to concerns about Russia’s assertiveness and actions. The 10-day military exercise, involving 31,000 troops and thousands of vehicles from 24 countries, has been welcomed among Nato’s allies in the region, though defence experts warn that any mishap could prompt an offensive reaction from Moscow. A defence attache at a European embassy in Warsaw said the “nightmare scenario” of the exercise, named Anaconda-2016, would be “a mishap, a miscalculation which the Russians construe, or choose to construe, as an offensive action”. Russian jets routinely breach Nordic countries’ airspace and in April they spectacularly “buzzed” the USS Donald Cook in the Baltic Sea.

The exercise, which US and Polish officials formally launched near Warsaw, is billed as a test of cooperation between allied commands and troops in responding to military, chemical and cyber threats. It represents the biggest movement of foreign allied troops in Poland in peace time. For the first time since the Nazi invasion of Soviet-occupied Poland began on 22 June 1941, German tanks will cross the country from west to east. Managed by Poland’s Lt Gen Marek Tomaszycki, the exercise includes 14,000 US troops, 12,000 Polish troops, 800 from Britain and others from non-Nato countries. Anaconda-2016 is a prelude to Nato’s summit in Warsaw on 8-9 July, which is expected to agree to position significant numbers of troops and equipment in Poland and the Baltic states.

It comes within weeks of the US switching on a powerful ballistic missile shield at Deveselu in Romania, as part of a “defence umbrella” that Washington says will stretch from Greenland to the Azores. Last month, building work began on a similar missile interception base at Redzikowo, a village in northern Poland. The exercise comes at a sensitive time for Poland’s military, following the sacking or forced retirement of a quarter of the country’s generals since the nationalist Law and Justice government came to power in October last year. So harsh have the cuts to the top brass been that the Polish armed forces recently found themselves unable to provide a general for Nato’s multinational command centre at Szczecin.

Tell me, do I feel safe now? 100,000 years is a long time. No fault lines? Volcanic activity?

• Finns To Bury Nuclear Waste In World’s Costliest Tomb (AFP)

Deep underground on a lush green island, Finland is preparing to bury its highly-radioactive nuclear waste for 100,000 years — sealing it up and maybe even throwing away the key. Tiny Olkiluoto, off Finland’s west coast, will become home to the world’s costliest and longest-lasting burial ground, a network of tunnels called Onkalo – Finnish for “The Hollow”. Countries have been wrestling with what to do with nuclear power’s dangerous by-products since the first plants were built in the 1950s. Most nations keep the waste above ground in temporary storage facilities but Onkalo is the first attempt to bury it for good. Starting in 2020, Finland plans to stow around 5,500 tons of nuclear waste in the tunnels, more than 420 metres (1,380 feet) below the Earth’s surface.

Already home to one of Finland’s two nuclear power plants, Olkiluoto is now the site of a tunnelling project set to cost up to €3.5 billion until the 2120s, when the vaults will be sealed for good. “This has required all sorts of new know-how,” said Ismo Aaltonen, chief geologist at nuclear waste manager Posiva, which got the green light to develop the site last year. The project began in 2004 with the establishment of a research facility to study the suitability of the bedrock. At the end of last year, the government issued a construction license for the encapsulation plant, effectively giving its final approval for the burial project to go ahead. At present, Onkalo consists of a twisting five-kilometre (three-mile) tunnel with three shafts for staff and ventilation. Eventually the nuclear warren will stretch 42 kilometres (26 miles).

[..] The waste is expected to have lost most of its radioactivity after a few hundred years, but engineers are planning for 100,000, just to be on the safe side. Spent nuclear rods will be placed in iron casts, then sealed into thick copper canisters and lowered into the tunnels. Each capsule will be surrounded with a buffer made of bentonite, a type of clay that will protect them from any shuddering in the surrounding rock and help stop water from seeping in. Clay blocks and more bentonite will fill the tunnels before they are sealed up.

Long piece on bleaching by the Guardian. Depressing.

• Great Barrier Reef: The Stench Of Death (G.)

It was the smell that really got to diver Richard Vevers. The smell of death on the reef. “I can’t even tell you how bad I smelt after the dive – the smell of millions of rotting animals.” Vevers is a former advertising executive and is now the chief executive of the Ocean Agency, a not-for-profit company he founded to raise awareness of environmental problems. After diving for 30 years in his spare time, he was compelled to combine his work and hobby when he was struck by the calamities faced by oceans around the world. Chief among them was coral bleaching, caused by climate change. His job these days is rather morbid. He travels the world documenting dead and dying coral reefs, sometimes gathering photographs just ahead of their death, too.

With the world now in the midst of the longest and probably worst global coral bleaching event in history, it’s boom time for Vevers. Even with all that experience, he’d never seen anything like the devastation he saw last month around Lizard Island in the northern third of Australia’s spectacular Great Barrier Reef. As part of a project documenting the global bleaching event, he had surveyed Lizard Island, which sits about 90km north of Cooktown in far north Queensland, when it was in full glorious health; then just as it started bleaching this year; then finally a few weeks after the bleaching began. “It was one of the most disgusting sights I’ve ever seen,” he says. “The hard corals were dead and covered in algae, looking like they’ve been dead for years. The soft corals were still dying and the flesh of the animals was decomposing and dripping off the reef structure.”

[..] When the coral dies, the entire ecosystem around it transforms. Fish that feed on the coral, use it as shelter, or nibble on the algae that grows among it die or move away. The bigger fish that feed on those fish disappear too. But the cascading effects don’t stop there. Birds that eat fish lose their energy source, and island plants that thrive on bird droppings can be depleted. And, of course, people who rely on reefs for food, income or shelter from waves – some half a billion people worldwide – lose their vital resource.

[..] What’s at stake here is the largest living structure in the world, and by far the largest coral reef system. The oft-repeated cliche is that it can be seen from space, which is not surprising given it stretches more than 2,300km in length and, between its almost 3,000 individual reefs, covers an area about the size of Germany. It is an underwater world of unimaginable scale. But it is up close that the Great Barrier Reef truly astounds. Among its waters live a dizzying array of colourful plants and animals. With 1,600 species of fish, 130 types of sharks and rays, and more than 30 species of whales and dolphins, it is one of the most complex ecosystems on the planet.

Coral off Lizard Island, bleached in March, and then dead and covered in seaweed in May. Photo: the Ocean Agency

Debt Rattle January 9 2016

Jan 092016

January 9, 2016 Posted by Raúl Ilargi Meijer at 9:42 am Finance Tagged with: Aramco, China, circuit breaker, FX, jobs, mining, oil, payday, refugees, reserves 1 Response »

DPC Longacre Square, soon to be Times Square 1904

• Worst First Five Days of Year Ever For US Stocks Dim Outlook (WSJ)

• The End of the Monetary Illusion Magnifies Shocks for Markets (BBG)

• More Than 40% Of Young Americans Use Payday Loans Or Pawnshops (Ind.)

• British People Donating Bodies To Science To Avoid Funeral Costs (Tel.)

• Multiple Jobholders Responsible For 64% Of Net US Job Gains (ECRI)

• First Profit Fall In 48 Years Looms Over US Energy Sector (MarketWatch)

• Mining’s $1.4 Trillion Plunge Like Losing Apple, Google, Exxon Combined (BBG)

• Inventor of Market Circuit Breakers Says China Got It Wrong (BBG)

• China Market Tsar In Spotlight Amid Stock Market Turmoil (Reuters)

• As Growth Slows, China’s Era of Easy Choices Is Over (WSJ)

• Why China Shifted Its Strategy for the Yuan, and How It Backfired (WSJ)

• China Finds $3 Trillion Just Doesn’t Pack the Punch It Used To (BBG)

• Shock, Laughter Greet Plan for Saudi Arabia’s Record Oil IPO (BBG)

• Saudi Aramco’s Fire Sale (BBG)

• US Accuses Volkswagen Of Poor Co-Operation With Probe (FT)

• Visible Light From Black Holes Detected For First Time (Guardian)

• Refugees Struggle In Sub-Zero Temperatures In Balkans (BBC)

• Greek Police, Frontex To ‘Check’ Volunteers On Islands Receiving Migrants (Kath.)

China went up on Friday, but Wall Street did not. Omen?

• Worst First Five Days of Year Ever For US Stocks Dim Outlook (WSJ)

The Dow industrials tumbled more than 1,000 points this week, marking the worst first five days of any year, as volatility across the globe rattled investors. Traders said they are bracing for further big swings in the weeks to come. The Dow fell 1% Friday after starting the day in positive territory amid a strong U.S. jobs report and an uneventful session in China’s markets overnight. But shares slumped in afternoon trading as investors became unwilling to enter the weekend exposed to the risk of further losses. In all, U.S. stocks lost $1.36 trillion in value this past week.

The unusually severe drop highlighted the precarious position of markets caught between relatively high valuations—attributable in part to years of easy money from central banks—and a new round of uncertainty about the fundamental underpinnings of key parts of the global economy. “The conundrum is there are parts of the world that are doing fine…and we have pockets that aren’t doing so well,” said Lawrence Kemp, head of BlackRock’s Fundamental Large Cap Growth team. “Given what’s going on in China and the rest of the world, the U.S. economy could grow a little more slowly.” The Dow Jones Industrial Average lost 1,078.58 points in the first week of 2016, down 6.2%. The broader S&P 500 was down 6%, also its worst five-day start to a year, and the Nasdaq Composite Index was down 7.3%.

Traders said the glum tone is likely to carry over into the coming week, as U.S. companies start reporting earnings for the last quarter of 2015. Corporate-earnings reports are widely expected to be underwhelming. The strong dollar is weighing on the competitiveness of U.S. exporters and the dollar value of companies’ overseas sales. Oil prices, which fell below $33 a barrel Friday in New York before closing at $33.16, continue to weaken. And China’s growth remains slow. Fourth-quarter earnings by companies in the S&P 500 are expected to come in 4.7% lower than they were a year earlier, according to FactSet.

Central banks

• The End of the Monetary Illusion Magnifies Shocks for Markets (BBG)

Central bankers are no longer the circuit breakers for financial markets. Monetary-policy makers, market saviors the past decade through the promise of interest-rate reductions or asset purchases, now lack the space to cut further or buy more. Even those willing to intensify their efforts increasingly doubt the potency of such policies. That’s leaving investors having to cope alone with shocks such as this week’s rout in China or when economic data disappoint, magnifying the impact of such events. “The monetary illusion is drawing to a close,” said Didier Saint Georges at Carmignac Gestion, an asset-management company. “With central banks becoming increasingly restricted in their stimulus policies, 2016 is likely to be the year when the markets awaken to economic reality.” Even against the backdrop of this week’s market losses, Fed officials signaled their intention to keep raising interest rates this year.

Those at the ECB and BoJ ended last year playing down suggestions they will ultimately need to intensify economic-aid programs. They have only themselves to blame for becoming agents of volatility, according to Christopher Walen at Kroll Bond Rating. He told Bloomberg TV this week that officials’ willingness to keep interest rates near zero and repeatedly buy bonds and other assets meant they became “way too involved in the global economy” and should have left more of the lifting work to governments. The handover to looser fiscal policy now needs to happen if economic growth and inflation are to get the spur they need, said Martin Malone at London-based brokerage Mint Partners. “Major economies have exhausted monetary and foreign-exchange policies,” he said. “Government action must take over from central-bank policies, triggering more confident private-sector investment and spending.”

Yeah, recovery.

• More Than 40% Of Young Americans Use Payday Loans Or Pawnshops (Ind.)

Young people are turning to desperate means to make ends meet. New figures that show 42% of Millennials, the generation born between 1980 and the mid-1990s, have turned to alternative finance including payday lenders and pawnshops in the past five years. The numbers come from a survey of more than 5,000 Millennials in the US by PriceWaterhouseCoopers and the Global Financial Literacy Excellence Center at George Washington University. Reports show that Millennials are high users of payday loans in the UK too. A 2014 report by the Financial Ombudsman Service showed that customers complaining about payday lenders were far more likely to be drawn from the 25-34 age group than any other.

The PwC study showed that a third of Millennials are very unsatisfied with their current financial situation and 81% have at least one long term debt, like a student loan or mortgage. That’s before they are saddled with interest on a payday loan that can be as much as 2000%. “They have already maxed out everything else and so they’re going to behavior that’s deemed even riskier,” said Shannon Schuyler, PwC’s corporate responsibility leader. The report also found that almost 30% of Millennials are overdrawn on their current accounts and more than half carry a credit card. Millennials are not the only generation suffering from rising debts. Earlier this week the Bank of England published a report showing that household borrowing surged in the run up to Christmas. The monthly cash rise in consumer credit for November 2015 was the highest since February 2008.

The shape of things to come. Who can afford a $5000-6000 funeral?

• British People Donating Bodies To Science To Avoid Funeral Costs (Tel.)

People are choosing to donate their body to science to avoid the cost of paying for a funeral, MPs have been warned. A leading forensic anthropologist said giving remains to anatomy departments can be seen as a way of avoiding the burden of funeral costs. However, science departments are not always able to take a person’s body, because of disease or because there is simply no space. Professor Sue Black, Director of the Centre for Anatomy and Human Identification at the University of Dundee, told the bereavement benefits inquiry families can be shocked to realise their loved one’s remains cannot be donated. “It is important that bequeathal is not viewed as an option to address funeral poverty although for some individuals it is unquestionably used in this manner,” she said.

As Dundee has one of the highest levels of child and adult poverty in Scotland, Professor Black said it is “not unusual for our bequeathal secretary to receive calls that will relate to concerns over funeral costs.” The Work and Pensions Committee is investigating funeral poverty after a freedom of information request by the BBC found the cost to local councils of so-called “paupers’ funerals” has risen almost 30pc to £1.7m in the past four years. The number of public health funerals, carried out by local authorities for people who die alone or whose relatives cannot afford to pay, has also risen by 11pc. [..] Bodies donated to science are mainly used for medical training and research.

But some are turned down because they are not suitable for educational use, for example if there has been a post-mortem and the body has already been dissected, or because the person has had a particularly destructive form of cancer, or if they have had an organ transplant. Potential donors must also make their wishes clear in their lifetime. “It’s really important that if people think that they want to donate their body, there are things that they must do. It’s not enough to say if verbally, they have to either find the consent forms or make a legal statement in a will or testament,” Professor Black said. The average cost of a basic funeral is now £3,702 according to a recent report.

Could be the major take-away from yesterday’s BLS report. Employment numbers do not reflect those of the employed.

• Multiple Jobholders Responsible For 64% Of Net US Job Gains (ECRI)

The latest jobs report far exceeded consensus expectations as the economy added 292,000 nonfarm payroll jobs. But a closer look at the details reveals why concerns remain about the health of the labor market. In December, year-over-year (yoy) growth in multiple jobholders rose to an 11-month high, while yoy growth in single jobholders eased to a three-month low. Specifically, since May the number of multiple jobholders has increased by 752,000, while single jobholders have increased by 429,000. In other words, multiple jobholders have been responsible for 64% of the net job gains since last spring. The disproportionate importance of multiple jobholders – forced to cobble together a living – shows why the labor market is weaker than it seems. Notably, as long as these multiple jobholders log 35 hours of work per week – no matter how many part-time jobs that takes – they are considered full-time.

1967. Remember?

• First Profit Fall In 48 Years Looms Over US Energy Sector (MarketWatch)

The energy sector will depress U.S. fourth-quarter earnings and subdue growth for the entire S&P 500, making 2015 the weakest year for earnings since 2008, Goldman Sachs said Friday. The bank trimmed its S&P 500 earnings-per-share estimates for 2015, 2016 and 2017 in a note that highlighted three factors it expects to feature in earnings releases and on conference calls this year. The fourth-quarter and 2015 earnings season kicks off next week. The report from Aluminum producer Alcoa, scheduled for Monday after the market’s close, is seen as the unofficial start of several weeks of corporate news. The first factor Goldman highlighted is the energy sector, which the bank says is about to show a decline in operating earnings per share for 2015, its first negative reading since the bank started keeping records in 1967. “Energy EPS has collapsed along with crude oil prices,” analysts wrote in a note.

Energy EPS is highly sensitive to the price of oil, which Goldman is assuming will average $44 a barrel this year. Crude futures were trading below $33 a barrel early Friday, after hitting their lowest level since 2004 this week. Energy companies have been hammered by the slump in oil prices caused by oversupply, which has made some shale plays unprofitable and led companies to slash spending budgets, sell underperforming assets and cut staff and other costs. “The write-down in energy company assets has exacerbated the earnings hit from the 35% fall in Brent crude oil prices in 2015, following a 48% plunge in the commodity price in 2014,” said the note. In 2014, the energy sector accounted for $13, or 12%, of the overall S&P 500’s EPS reading of $113. In 2015, that contribution had tumbled to a loss of $2. That means energy contributed a $15 decline to S&P 500 earnings, which more than outweighed EPS gains in other sectors, said the note.

Much more downside to come.

• Mining’s $1.4 Trillion Plunge Like Losing Apple, Google, Exxon Combined (BBG)

The $1.4 trillion lost in global mining stocks since 2011 exceeds the total market value of Apple, Exxon Mobil and Google’s parent Alphabet. When you’ve spent a decade building new mines from the Andean mountains to the West African jungle, it’s bad news when a downturn in China, your biggest customer, shows no signs of stopping. Investors have been unforgiving and concerns that it will only get worse pushed the Bloomberg World Mining Index to an 11-year low. “It’s terrible, there are no two ways about it,” said Paul Gait at Sanford C. Bernstein in London. “A lot of people were hoping at the start of 2016 to see at least some stabilization in the commodity performance in these stocks. Essentially people were looking to close the consensus short that has characterized 2015. This has clearly not happened.”

BHP Billiton and Rio Tinto were once among the world’s largest companies. Shares of the biggest commodity producers trading in London are now at least twice as volatile as the U.K.’s benchmark stock index. Raw-material prices slipped to the lowest since 1999 on Thursday, with China’s stock market suffering its worst start to the year in two decades after the central bank cut the yuan’s reference rate by the most since August. A weaker currency encourages exports from the nation and makes it costlier for it to import commodities, hurting those that supply them. Anglo American, worth almost £50 billion ($73 billion) in 2008, is now valued at £3.1 billion. The 99-year-old company, which is the world’s biggest diamond and platinum producer and owns some of the best copper and coal mines, is now worth less than mid-tier Randgold and copper miner Antofagasta.

Apple, the world’s most valuable company, is worth about $549 billion. Alphabet is valued at $510 billion and Exxon $321 billion. The Bloomberg mining index of 80 stocks slumped as much as 4.1% on Thursday to the lowest since 2004. Anglo closed down 11% in London to the lowest since it started trading in 1999. BHP tumbled 5% and Rio retreated 3.4%. Glencore settled down 8.3%.

They seem to get a lot wrong.

• Inventor of Market Circuit Breakers Says China Got It Wrong (BBG)

The man responsible for stock circuit breakers says Chinese officials must revise their safety net to avoid creating panic, joining critics who argue the nation’s trading halts are triggered too easily for such a volatile market. “They’re just on the wrong track,” said Nicholas Brady, 85, the former U.S. Treasury secretary who ran a committee that recommended the curbs on equity trading after the 1987 crash. “They need a set of circuit breakers that appropriately reflects their market.” Brady spoke Thursday after Chinese regulators suspended their newly introduced program that ends stock trading for the entire day after a 7% plunge. The halt was set off twice in its first week of operation, bolstering speculation China set its threshold too low. “The right thing to do is to widen their band,” Brady said in an interview.

The U.S. confronted a similar problem in the 1990s. The curb that the Brady Commission helped implement shut the market for the first time on Oct. 27, 1997, when the Dow Jones Industry Average lost 554 points. That was only a 7.2% decline, almost identical to the Thursday plunge in China’s CSI 300 Index. The trouble was that a decade-long surge in U.S. stock prices had diminished the value of each point in the Dow. The 1987 crash’s 508-point slump had amounted to a 23% tumble, three times greater than the decline that froze trading 10 years later. Regulators and exchanges pushed through a revision: If the Dow fell 10%, there would be an hour pause. At 20%, trading would cease for two hours, and at 30%, the day would end early.

In recent years, the benchmark that triggers the halts switched to the Standard & Poor’s 500 Index and the levels changed. Now it takes 7% and 13% drops to prompt a brief pause, and a 20% decline to close markets early for the day. Whereas 7% losses are rare in the U.S. – they were only common during the 2008 financial crisis, October 1987, and the Great Depression – Chinese shares have dropped about that much seven times in the past year. “I don’t think this is an exact science,” said Sang Lee, an analyst at financial-markets researcher Aite Group. With circuit breakers, “If you set these too low, instead of easing volatility it may increase volatility. That echoes the view of Brady, who was chairman of Wall Street powerhouse Dillon Read & Co. when President Ronald Reagan asked him to figure out what happened during the 1987 crash and propose solutions.

Lost in Beijing hubris.

• China Market Tsar In Spotlight Amid Stock Market Turmoil (Reuters)

Xiao Gang, China’s stock market tsar, once remarked that the only thing he’d done right in life was marry his wife. No doubt the self-effacing Xiao, chairman of China Securities Regulatory Commission (CSRC), has done many other things right. Managing the stock market, though, might not be a high point of his career. Xiao faced internal criticism from the ruling Communist Party for his handling of the stock market crash last year, sources with ties to the leadership said at the time. In another blow, a “circuit breaker” mechanism to limit stock market losses that was introduced on Monday was deactivated by Thursday after it was blamed for exacerbating a sharp selloff. Online media had nicknamed Xiao “Mr Circuit Breaker”.

“There has to be responsibility. People are looking to the leader at the regulator. Xiao Gang is the public face,” said Fraser Howie, an independent China market analyst. “He was lucky to keep his job after the fiasco of July and August.” Xiao, 57, became chairman of the CSRC in the leadership churn when President Xi Jinping came into power, taking the helm of the regulator in March 2013. At the time, Chinese markets had been among the world’s worst-performing for six years – indeed they had not recovered from their collapse during the global financial crisis. Unfortunately for Xiao, they still haven’t. The challenge Xiao faced upon taking up the post was enormous: to attract fresh investment into equities from speculative bubbles in sectors like real estate, while defending against endemic insider trading.

To pull any of this off he needed to first convince China’s legions of small retail investors, who dominate transactions but are infamously fond of quick-hit speculative plays, that stocks are a safe place to park long-term capital. The urgency was heightened by the need to deal with China’s corporate debt overhang – Chinese firms had become almost entirely dependent on bank loans for financing, which naturally prejudiced economic development toward collateral-rich heavy industry and away from the innovative, nimble technology companies that tend to rely more on stock issuances to fund quick growth.

Chinese politics clash with economics. By default. It’s not just pushing a button or pulling a lever.

• As Growth Slows, China’s Era of Easy Choices Is Over (WSJ)

China has pulled hundreds of millions of people from poverty, supercharged its economy and burnished the pride of a nation that stood weak and isolated only decades ago. But swelling levels of debt, bloated state companies and an overall aversion to market forces are swamping the world’s second-largest economy, threatening to derail China’s ascent to the ranks of rich countries. As Beijing battles another bout of stock-market turmoil—and global markets shudder in response—the risks of doing nothing about these deep-seated problems are rising, economists said. Without a change in course, they said, China faces a period of low growth, crimped worker productivity and stagnating household wealth. It’s a condition known as “the middle-income trap.” “The era of easy growth is over,” said Victor Shih, professor at the University of California-San Diego.

“It’s increasingly about difficult choices.” Some economists don’t rule out an abrupt drop in growth, a hard landing that would see bad debts soar, consumer confidence tank, the Chinese yuan plunge, unemployment spiral and growth crater. More likely is that Beijing will continue to prop up growth, steering more capital to money-losing companies, unneeded infrastructure and debt servicing, depriving the economy of productive investment and leading to the sort of protracted malaise seen in Japan in recent decades. But China is less prosperous than Japan. An anemic China would weaken global growth at a time of low demand and prolong the downturn for big commodity producers like Brazil that have been dependent on the Asian economic giant. “They don’t want to take the pain,” said Alicia Garcia Herrero at investment bank Natixis. “But the longer they wait, the more difficult it becomes.”

Chinese leaders are aware of the risks. On Tuesday, Premier Li Keqiang called for a greater focus on innovation to spur new sources of economic growth and to revitalize traditional sectors, according to the Xinhua. A far-reaching economic blueprint laid out in 2013 after President Xi Jinping came to power vowed to let markets take a “decisive” role and build out a legal framework to restructure the economy and benefit consumers and small businesses, rather than industry. Progress to date, economists said, has been disappointing. Political objectives stand in the way. Mr. Xi has committed the government to meeting a goal of doubling income per person between 2010 and 2020, the eve of the 100th anniversary of the ruling Communist Party. That means, in Mr. Xi’s eyes, that growth must reach 6.5% annually. With global demand slipping and fewer Chinese entering the workforce, Beijing will need to resort to stimulus spending to get there, analysts said, delaying the reckoning with restructuring.

“As of September, China’s outstanding foreign debt stood at $1.53 trillion. More than two-thirds of that amount is expected to come due within a year..”

• Why China Shifted Its Strategy for the Yuan, and How It Backfired (WSJ)

The IMF’s decision on Nov. 30 to declare the yuan an official reserve currency removed an incentive for the central bank to keep propping up the currency. Rather, it aims to let it gradually depreciate with an eye toward sending it modestly higher in this year’s second half, according to advisers to the PBOC. That is when Beijing will host leaders from the Group of 20 major economies and will be eager to showcase China’s economic might. But that strategy is fraught with risks. Chief among them, analysts say, is the difficulty in reversing continued market expectations for a still-weaker yuan. In Hong Kong, where the yuan can be bought and sold freely, the Chinese currency now trades at a steep discount to its mainland cousin, whose trading is limited within a government-dictated band.

The gap has led some investors to try to profit from the different exchange rates, causing irregular flow of funds across China’s borders. By intervening in the Hong Kong market Thursday to try to cap the offshore yuan rate and at the same time allowing the onshore rate to weaken faster, the central bank appears to be attempting to find “a near-term market equilibrium level that can help the exchange rates converge,” analysts at HSBC wrote in a research note. The central bank also doesn’t want a too-weak yuan to exacerbate capital outflows and make it more difficult for Chinese companies to pay off their dollar-denominated debt. As of September, China’s outstanding foreign debt stood at $1.53 trillion. More than two-thirds of that amount is expected to come due within a year, according to government data.

Among the big foreign-debt holders are Chinese property companies, which have more than $60 billion of dollar debt outstanding, according to data provider Dealogic. Wary of continued weakening of the yuan, some Chinese companies are moving to pay off their debt early. State-run airliner China Eastern Airlines paid down $1 billion of dollar debts on Monday, citing the need to reduce its exposure to exchange-rate fluctuations. For many years, the prevailing investor sentiment had been the yuan had no way to go but up as China’s trade surplus surged. Investors have now shifted their mind-set to the other extreme.

Will they have any FX reserves left a year from now? It’s not all that obvious.

• China Finds $3 Trillion Just Doesn’t Pack the Punch It Used To (BBG)

China’s $3 trillion-plus in foreign currency reserves, the biggest such stockpile in the world, would seem to be a gold-plate insurance policy against the country’s current market chaos, a depreciating currency and torrent of capital leaving the country. Maybe not, say economists. First off, data point to an alarming burn rate of dollars at the People’s Bank of China. The nation’s stockpile of foreign exchange reserves plunged by $513 billion, or 13.4%, in 2015 to $3.33 trillion as the nation’s central bank coped with a weakening yuan and an estimated $843 billion in capital that left China between February and November, the most recent tally available according to data compiled by Bloomberg. “My greatest worry is the fast depletion of FX reserves,” said Yu Yongding, a member of China’s monetary policy committee when the currency was revalued in 2005.

True, trillions of dollars under the central bank’s care are thought to be invested in safe liquid securities, including Treasury bonds. The U.S. measure of China’s holdings of Treasuries, the benchmark liquid investment in dollars, stood at $1.25 trillion in October, according to the U.S. Treasury Department, which cautions that the figures may not reflect the true ownership of securities held in a custodial account in a third country. In China, like some other countries, the exact composition of China’s reserves is a state secret. But analysts worry the currency armory may not be as strong as it looks. That’s because some of the investments may not be liquid or easy to sell. Others may have suffered losses that haven’t been accounted for.

In addition, some Chinese reserves may have already been committed to fund pet government projects like the Silk Road fund to build roads, ports and railroad across Asia or tens of billions in government-backed loans to countries such as Venezuela, much of which is repaid through oil shipments. Then there are other liabilities that China needs to cover, such as the nation’s foreign currency debt to finance and manage imports denominated in overseas currencies. When those factors are taken into account, some $2.8 trillion in reserves may already be spoken for just to cover its liabilities, according to Hao Hong at Bocom International. “Considering China’s foreign debt, trade and exchange rate management, it needs around $3 trillion in foreign exchange reserves to be comfortable.” he said.

[..] “Where is the line in the sand, and what happens when we get there?,” said Charlene Chu, the former Fitch analyst known for her warnings over China’s debt risks. “China’s large hoard of foreign reserves gives the country considerable power and influence globally, and I would think they would want to protect that. If there is such a line in the sand, it is very possible we hit it in 2016.” To be sure, intervention isn’t the only thing dragging China’s reserves lower. There’s also a valuation impact from fluctuating currencies. Some of the fall may also reflect authorities accounting for its investments. Chu reckons much of the decline up to June 2015 was mostly due to investments in illiquid assets and valuation changes rather than capital outflows.

“The company could be worth anything from $1 trillion to upwards of $10 trillion..”

• Shock, Laughter Greet Plan for Saudi Arabia’s Record Oil IPO (BBG)

When one financial adviser heard about Saudi Arabia’s plans to list a company larger than the economies of most nations, he had to pull over his car because he was laughing so hard. Saudi Arabian Oil Co., or Aramco, the world’s largest oil producer, said Friday it’s considering an initial public offering. It confirmed an interview with Deputy Crown Prince Mohammad bin Salman published in the Economist Thursday. The news was greeted with incredulity in the financial industry, according to interviews with a half dozen bankers who do business in the Middle East. They asked not to be identified to protect their business interests. For one thing, Aramco’s inner workings are opaque, making its true value a mystery. Then there’s the timing. The price of crude oil is near its lowest level in more than a decade.

Discussions with Aramco about selling assets in the past had been about much smaller parts of the business, five of the people said. An initial public offering of the entire enterprise had only ever been discussed as a joke, one of the people said. The company could be worth anything from $1 trillion to upwards of $10 trillion, which would make it the most valuable company in the world, according to a note from Jason Tuvey at research firm Capital Economics. The last mega IPO from the oil industry was a decade ago, when Russia’s OAO Rosneft raised more than $10 billion. Even if Saudi Arabia sells a small stake, a listing could easily surpass that of Alibaba whose $25 billion IPO is the largest on record. Still, Aramco is unlikely to list on the biggest exchanges, according to Bloomberg oil strategist Julian Lee.

That would require the government to give investors more detailed information about Aramco’s reserves and production capacity, something oil-producing nations consider state secrets, he said. Aramco is considering selling an “appropriate%age” of its shares in the capital markets or listing a bundle of its subsidiaries, it said in the statement. Saudi Arabia typically sells stakes in state-owned companies to the public at below market value as part of its efforts to redistribute wealth. National Commercial Bank raised $6 billion in 2014 in the Middle East’s largest share sale. As the bankers do the sums, a big IPO won’t necessarily translate into big fees. Governments often pay low fees on their exits.

“.. it’s hard not to see talk of floating Aramco as a defensive move forced on a kingdom that is under pressure on the financial, political and military fronts.”

• Saudi Aramco’s Fire Sale (BBG)

That strange and rather unappetizing sound you just heard was the world’s energy bankers simultaneously salivating over the prospect of the oil deal of the century. In an interview published Thursday by The Economist, Saudi Arabia’s deputy crown prince Muhammad bin Salman said his country is considering privatizing Saudi Aramco. A quick back-of-the-envelope calculation for a company whose oil reserves dwarf those of Exxon Mobil yields a potential market capitalization of: gajillions. Apart from anything else, Aramco’s role in supplying roughly a tenth of the world’s oil would make its earnings guidance required reading not merely for sell-side analysts, but central bankers, government leaders and generals, too.There are many caveats here, beginning with the fact that the privatization is “something that is being reviewed.”

And if privatization were to proceed, it might well involve listing shares in some downstream part of Aramco such as petrochemicals, rather than the core upstream business or parent company. The bigger issue, though, is the idea appearing to have any traction at all and being spoken of publicly by no less a figure than the deputy crown prince. It adds a further twist to a narrative emanating from Saudi Arabia that suggests the global oil market is undergoing epochal change. The interview was wide-ranging, touching on relations with Iran and the U.S., women in the workforce, tax reform and possible privatization in many sectors, not just energy. And the deputy crown prince was in expansive mode, agreeing with his interviewer’s supposition that the autocratic kingdom is undergoing a “Thatcher revolution” and answering one question on attracting foreign investors with an almost Trumpian “I’m only giving out opportunities.”

The context for this sweeping vision, though, is the OPEC benchmark oil price having just slipped below $30 a barrel. The rational time to sell shares in Aramco would have been, let’s see, about 18 months ago, when oil was still trading in triple digits and the MSCI Emerging Markets Index was nudging 1100 rather than languishing below 750. Of course, other things play a part in deciding to privatize any state jewel of this scale – such as, in the words of the deputy crown prince, fostering transparency and strengthening the domestic stock market. Such factors were there, for example, in the privatization of China’s oil majors at the start of this century. Yet it’s hard not to see talk of floating Aramco as a defensive move forced on a kingdom that is under pressure on the financial, political and military fronts.

Saudi Arabia still sits on sizable foreign reserves. But the increases in (heavily subsidized) domestic fuel prices announced recently, as part of the country’s annual budget, indicate Riyadh’s desire to hunker down for a prolonged period of low oil prices. Indeed, it is possible that raising money from an Aramco IPO would be designed to show that the state is making its own sacrifices. [..] Change is clearly in the air. Riyadh is due later this month to unveil a medium-term “National Transformation Plan” aimed at, among other things, streamlining a public sector where wages swallow up nearly a fifth of GDP and diversifying the country’s tax base. This comes soon after a decision to open the country’s stock market to foreign investors. And, of course, it is happening amid an ongoing policy to maximize oil production in a suddenly much more competitive global oil market.

In one unnerving respect, this is bullish for oil: Ossified political structures are highly vulnerable precisely when they seek even partial reform. Any destabilization in Saudi Arabia could provide the supply shock that clears the glut in oil and raises oil prices. But don’t forget the warnings given by Saudi Arabia’s petroleum minister just over a year ago that global oil demand growth may face a “black swan” in the next few decades. Viewed through that lens, the policy of pumping more barrels out now looks like not merely a strategy to maintain market share but also to simply monetize reserves that might otherwise be left to mire underground. Take it one step further, and you might say the same of Riyadh suddenly deciding it’s time to cash in on Saudi Aramco now, oil price be damned.

“VW cited German law as its reason for not co-operating.”

• US Accuses Volkswagen Of Poor Co-Operation With Probe (FT)

Volkswagen is failing to co-operate sufficiently with a US investigation into the emissions scandal, according to New York attorney-general Eric Schneiderman, who warned that the authorities’ patience was “wearing thin”. Mr Schneiderman said on Friday that VW’s co-operation with a probe involving 47 state attorneys-general had been “spotty” and “slow”, adding to the German carmaker’s mounting troubles in the US. On Monday, the Department of Justice sued VW in a civil case, seeking at least $45bn in penalties. The US authorities’ clash with VW came as the company said that its annual sales had fallen last year for the first time in more than a decade.

A combination of the emissions scandal and turmoil in emerging markets has taken a toll on Europe’s biggest carmaker, pushing group-wide sales below 10m units in 2015. VW admitted in September that it had installed “defeat devices” in up to 11m cars, including 482,000 in the US, that served to understate the diesel-powered vehicles’ emissions of nitrogen oxides during official tests. The 47 state attorneys-general, plus prosecutors in Washington DC, are investigating whether VW violated environmental laws and misled consumers. The justice department is pursuing a similar probe now relating to almost 600,000 VW cars in the US.

“Volkswagen’s co-operation with the states’ investigation has been spotty — and frankly, more of the kind one expects from a company in denial than one seeking to leave behind a culture of admitted deception,” Mr Schneiderman said. He added that VW had been slow to produce documents from its US files, had sought to delay responses until it completed its own investigation, and had “failed to pursue every avenue to overcome the obstacles it says that German privacy law presents to turning over emails from its executives’ files in Germany”. “Our patience with Volkswagen is wearing thin,” Mr Schneiderman said. The New York Times first reported that VW was not handing over documents to the US authorities. VW cited German law as its reason for not co-operating.

Not long ago the very idea was considered heresy.

• Visible Light From Black Holes Detected For First Time (Guardian)

Astronomers have discovered that black holes can be observed through a simple optical telescope when material from surrounding space falls into them and releases violent bursts of light. The apparent contradiction emerges when a black hole’s gravity pulls in matter from nearby stars, producing light that can be viewed from a modest 20cm telescope. Japanese researchers detected light waves from V404 Cygni – an active black hole in the constellation of Cygnus, the Swan – when it awoke from a 26-year-long slumber in June 2015. Writing in the journal Nature, Mariko Kimura of Kyoto University and others report how telescopes spotted flashes of light coming from the black hole over the two weeks it remained active. The flashes of light lasted from several minutes to a few hours. Some of the telescopes were within reach of amateur astronomers, with lenses as small as 20cm.

“We now know that we can make observations based on optical rays – visible light, in other words – and that black holes can be observed without high-spec x-ray or gamma-ray telescopes,” Kimura said. The black hole, one of the closest to Earth, has a partner star somewhat smaller than the sun. The two objects circle each other every six-and-a-half days about 8,000 light years from Earth. Black holes with nearby stars can burst into life every few decades. In the case of V404 Cygni, the gravitational pull exerted on its partner star was so strong that it stripped matter from the surface. This ultimately spiralled down into the black hole, releasing a burst of radiation. Until now, similar outbursts had only been observed as intense flashes of x-rays and gamma-rays.

At 18.31 GMT on 15 June 2015, a gamma ray detector on Nasa’s Swift space telescope picked up the first signs of an outburst from V404 Cygni. In the wake of the event, Japanese scientists launched a worldwide effort to turn optical telescopes towards the black hole. The flickers of light are produced when x-rays released from matter falling into the black hole heat up the material left behind. Poshak Gandhi, an astronomer at Southampton University, said the black hole looked extremely bright when matter fell in, despite being veiled by interstellar gas and dust. “In the absence of this veil, V404 Cygni would have been one of the most distant objects in the Milky Way visible in dark skies to the unaided eye in June 2015,” he writes in the journal.

Death stalks Europe.

• Refugees Struggle In Sub-Zero Temperatures In Balkans (BBC)

Medics working at refugee aid camps in the Balkans say they are seeing a spike in the number of migrants falling ill as freezing temperatures arrive. It has fallen to as low as -11C (12F) in the region. The medical charities International Medical Corps and Medecins Sans Frontieres say most patients are suffering with respiratory problems such as bronchitis and flu. There are also concerns about people refusing or not seeking treatment. Migrants are offered medical assistance, warm clothes and food at the main refugee points at the Serbian border with Macedonia to the south, and Croatia to the north. International Medical Corps runs a makeshift clinic at the train station in the tiny town of Sid, in northern Serbia “Last week, when temperatures were a bit less, we were seeing around 50 to 60 people a day,” said Sanja Djurica, IMC team leader.

“This week, now that temperatures have fallen, it’s more like 100 or so a day.” “Almost all of them are suffering with respiratory illnesses brought on by the cold.” I met the Al-Maari family, who are making the journey as the snow falls thick and fast. They fled Syria three weeks ago, and have been on the road ever since. They are travelling with four children, the youngest is just two years old. His brother Mohammad, seven, is suffering with fever and a chest infection. “We are on a journey of death,” said Mohammad’s uncle, Iyad Al-Maari. “We can endure. But I am worried about the children – the cold, disease and hunger.” Mohammad is not thought to be seriously ill. Iyad said the family are determined to continue to Germany, where the children’s father is waiting for them.

“Some people are refusing further medical help after we’ve assessed them,” said Tuna Turkmen from MSF in Serbia. “Even if they are referred to hospital, most don’t go. They just want to keep moving… in case borders suddenly close and they are left stranded.” With tears in her eyes, Mohammad’s mother, Malak, said: “We didn’t want any of this… we just want the war to end in Syria.” The stress and anxiety can be seen clearly on Malak’s face. She is traumatised and desperate. Medics have also highlighted the enormous psychological impact on those making these journeys. International Medical Corps has psychologists on hand in Sid, and even though people only tend to stay there for a few hours, medics and aid workers do have some time to deliver “psychological first aid”. “It’s emotional comfort, empathetic listening and encouraging coping techniques,” said Sanja Djurica.

Checking those who filled in when Europe was a no-show. What a joke.

• Greek Police, Frontex To ‘Check’ Volunteers On Islands Receiving Migrants (Kath.)

The Greek Police and [EU border agency] Frontex are to carry out checks on non-governmental organizations and volunteers on islands of the northern Aegean which have been receiving large numbers of migrants, sources have told the Athens-Macedonia News Agency. “Our goal is not to offend the volunteers and employees of NGOs nor to disrupt their work but to simply highlight the presence of the police on the coastline and generally in areas where migrants and refugees are disembarking,” a police source told AMNA. There will also be an investigation into reports that certain individuals posed as refugees in order to steal the personal belongings of refugees or the smuggling boats on which they reach the islands. The broader checks will seek to determine that people declaring themselves as volunteers are working for an accredited organization. The aim is to restore a sense of security on the islands, police source said, not to prevent the work of the NGOs.

Debt Rattle New Year’s Day 2016

Jan 012016

January 1, 2016 Posted by Raúl Ilargi Meijer at 10:29 am Finance Tagged with: Bailouts, China, copper, gold, jobs, lawsuits, oil, VW 1 Response »

Unknown Gurley-Lord service station, San Francisco 1929

• US Stocks Close Out The Worst Year For The Market Since 2008 (AP)

• Oil Drops 31% In 2015 On Global Crude Glut (MarketWatch)

• Gold Sinks 10% For 3rd Annual Loss as Platinum, Palladium Hit Hard (Reuters)

• Copper Ends Dismal Year on a Low Note (WSJ)

• Half a Million Bank Jobs Have Vanished Since 2008 Crisis (BBG)

• China December Factory Activity Shrinks (Reuters)

• Chicago PMI Plummets To Lowest Since 2009 (MarketWatch)

• VW Buybacks, Payments For Hard-to-Fix Diesels Will Be Very Costly (GCR)

• Keiser Report feat. Gerald Celente: ‘Bankism’, Oil Prices And More (RT)

• EU’s Trillion Euro Bank Bail-Outs Are Over (Telegraph)

• In Europe, 2016 Will Be The Year Of Lawsuits (Coppola)

“A very unrewarding year.” Yeah, well, brace yourselves.

• US Stocks Close Out The Worst Year For The Market Since 2008 (AP)

U.S. stocks closed lower on Thursday, capping the worst year for the market since 2008. The Standard & Poor’s 500 index ended essentially flat for the year after the day’s modest losses nudged it into the red for 2015. Even factoring in dividends, the index eked out a far smaller return than in 2014. The Dow Jones industrial average also closed out the year with a loss. The tech-heavy Nasdaq composite fared better, delivering a gain for the year. “It’s a lousy end to a pretty lousy year,” said Edward Campbell, portfolio manager for QMA, a unit of Prudential Investment Management. “A very unrewarding year.” Trading was lighter than usual on Thursday ahead of the New Year’s Day holiday. Technology stocks were among the biggest decliners, while energy stocks eked out a tiny gain thanks to a rebound in crude oil and natural gas prices.

The Dow ended the day down 178.84 points, or 1%, to 17,425.03. The S&P 500 index lost 19.42 points, or 0.9%, to 2,043.94. The Nasdaq composite fell 58.43 points, or 1.2%, to 5,007.41. For 2015, the Dow registered a loss of 2.2%. It’s the first down year for the Dow since 2008. The Nasdaq ended with a gain of 5.7%. The S&P 500 index, regarded as a benchmark for the broader stock market, lost 0.7% for the year. According to preliminary calculations, the index had a total return for the year of just 1.4%, including dividends. That’s the worst return since 2008 and down sharply from the 13.7% it returned in 2014. While U.S. employers added jobs at a solid pace in 2015 and consumer confidence improved, several factors weighed on stocks in 2015.

Investors worried about flat earnings growth, a deep slump in oil prices and the impact of the stronger dollar on revenues in markets outside the U.S. They also fretted about the timing of the Federal Reserve’s first interest rate increase in more than a decade. The uncertainty led to a volatile year in stocks, which hit new highs earlier in the year, but swooned in August as concerns about a slowdown in China’s economy helped drag the three major stock indexes into a correction, or a drop of at least 10%. The markets recouped most of their lost ground within a few weeks. “The market didn’t go anywhere and earnings didn’t really go anywhere,” Campbell said.

From $114(?) to $37 in two years time.

• Oil Drops 31% In 2015 On Global Crude Glut (MarketWatch)

Oil futures ended higher Thursday in the final trading session of 2015, but posted a steep annual drop for the second year in a row as markets continue to wrestle with a global glut of crude. On the New York Mercantile Exchange, light, sweet crude futures for delivery in February rose 44 cents, or 1.2%, to finish at $37.04 a barrel. For the year, the U.S. benchmark dropped 30.5% and has lost 62.4% over the last two years. Crude hadn’t dropped two years in a row since 1998. February Brent crude, the global benchmark, rose 82 cents, or 2.3%, on London’s ICE Futures exchange to settle at $37.28 a barrel. Brent fell 35% in 2015, marking its third straight yearly drop. Oil trimmed gains somewhat after oil-field services firm Baker Hughes said the total number of U.S. oil rigs fell by two this week to 536.

Oil’s bounceback on Thursday likely reflected some short covering ahead of year-end and a three-day weekend, said Phil Flynn at Price Futures. U.S. markets will be closed Friday for the New Year’s Day holiday. Flynn said traders might be nervous about maintaining short positions amid rising tensions within Iran that could threaten the implementation of a nuclear accord that was expected to result in the lifting of sanctions that have prevented the country from exporting oil. Iran’s president has ordered his defense minister to expedite the country’s ballistic missile program following newly planned U.S. sanctions, he said Thursday, according to The Wall Street Journal. With U.S. production “growing for the last few weeks and global inventories being near storage limits, this is yet another reminder that the supply glut could take a long time to clear, which may mean even lower oil prices in the near term,” said Fawad Razaqzad at Forex.com.

Platinum and palladium are the more interesting metals when it comes to determining where economies are going.

• Gold Sinks 10% For 3rd Annual Loss as Platinum, Palladium Hit Hard (Reuters)

Gold was steady on Thursday, ending the year down 10% for its third straight annual decline, ahead of another potentially challenging year in 2016 amid the prospect of higher U.S. interest rates and a robust dollar. Largely influenced by U.S. monetary policy and dollar flows, the price of gold fell 10% in 2015 as some investors sold the precious metal to buy assets that pay a yield, such as equities. The most-active U.S. gold futures for February delivery settled at $1,060.2 per ounce on Thursday, almost flat compared with Wednesday’s close of $1,059.8 and close to six-year lows of $1,046 per ounce earlier in December. Spot gold was down 0.2% at $1,061.4 an ounce at 1:57 p.m. EDT, during the last trading session of the year. Volumes were thin ahead of the New Year holiday on Friday.

“The key factor for gold remains the strong dollar and that ultimately trumps all other issues including the economy and the geopolitics,” said Ross Norman, CEO of bullion broker Sharps Pixley. The dollar was on track for a 9% gain this year against a basket of major currencies, making dollar-denominated gold more expensive for holders of other currencies. Other precious metals have also been hit by dollar strength and the gold slump, and were headed for sharp annual declines. The most-active U.S. silver futures settled at $13.803 per ounce on Thursday, down 0.3% from Wednesday and ending the year down 12%. Spot prices were down 0.2% at $13.83 an ounce. Industrial metals platinum and palladium were harder hit, notching up big yearly losses partly due to oversupply from mines and concerns about growth in demand. Platinum futures settled at $893.2 per ounce, down 26% from a year ago, while the most-active palladium futures ended at $562, down 30% on the year.

Copper and zinc -25%, nickel -42%, palladium -30%, platinum -26%.

• Copper Ends Dismal Year on a Low Note (WSJ)

Copper prices fell in London on Thursday ending a dismal year as industrial metals were battered by a toxic mix of oversupply and concern over demand from China. Analysts don’t expect much respite for copper in 2016, with the oversupply expected to continue and the macroeconomic picture still uncertain. Among other factors, commodity prices have been hit by a stronger dollar, and few economists expect the greenback to weaken in any meaningful way. “I think that the bear market is not totally complete,” said Boris Mikanikrezai, an analyst at financial markets research company Fastmarkets. “Although a temporary rally in metal prices is possible over a one-to-three-month horizon, the macro fundamental picture may warrant lower prices.”

On Thursday, the London Metal Exchange’s three-month copper contract was down 0.5% at $4,720.50 a metric ton in midmorning European trade. Other base metals were mixed. Copper has lost about a quarter of its value this year. Among other base metals, nickel has lost 42%, zinc is down 25% while aluminum fell 18% over the year. “In retrospect, 2015 will be considered a year that can be safely forgotten when it comes to copper,” analysts at Aurubis, Europe’s largest copper producer, said in a report.

Worries about the health of the Chinese economy will continue to roil metals markets in 2016, analysts said. The country is the biggest source of global demand for metals, accounting for nearly half of total global zinc consumption, 45% of global copper consumption and 40% of lead production. “It will be another challenging year for China and that will affect metals,” said Xiao Fu, head of commodity markets strategy at BOCI Global Commodities. “Still, we expect the government’s fiscal stimulus package announced this year to provide some support for demand in 2016.”

More to come.

• Half a Million Bank Jobs Have Vanished Since 2008 Crisis (BBG)

Staff reductions at some of the world’s biggest banks are far from over. Deutsche Bank, which has held employment close to its 2010 peak, plans to slash 26,000 positions by 2018, following a trend that began with the financial crisis. Announced cuts in the fourth quarter total at least 47,000, following 52,000 lost jobs in the first nine months of 2015. That would bring the aggregate figure since 2008 to about 600,000. UniCredit says it will eliminate about 18,200 positions. Citigroup, which has reduced its workforce by more than a third, plans to eliminate at least 2,000 more jobs next year.

Not growing slower, but contracting.

• China December Factory Activity Shrinks (Reuters)

China looked set for a soggy start to 2016 after activity in the manufacturing sector contracted for a fifth straight month in December, suggesting the government may have to step up policy support to avert a sharper slowdown. While China’s services sector ended 2015 on a strong note, the economy still looked set to grow at its slowest pace in a quarter of a century despite a raft of policy easing steps, including repeated interest rate cuts, in the past year or so. The world’s second-largest economy faces persistent risks this year as leaders have pledged to push so-called “supply-side reform” to reduce excess factory capacity and high debt levels.

The official manufacturing Purchasing Managers’ Index (PMI) stood at 49.7 in December, in line with expectations of economists polled by Reuters and up only fractionally from November. A reading below 50 suggests a contraction in activity. Still, economists seemed to find some comfort that there were no signs of a sharper deterioration which has been feared by global investors. The slight pick up in the manufacturing PMI “suggests that (economic) growth momentum is stabilizing somewhat … however, the sector is still facing strong headwinds, said Zhou Hao, China economist at Commerzbank in Singapore. “In order to facilitate the destocking and deleveraging process, monetary policy will remain accommodative and the fiscal policy will be more proactive.”

More contracting economic activity.

• Chicago PMI Plummets To Lowest Since 2009 (MarketWatch)

Economic activity in the Midwest contracted at the fastest pace in more than six years in December, according to the Chicago Business Barometer, also known as the Chicago PMI. The index fell to 42.9 from 48.7 in November. Economists had expected it to rise 1.3 points to 50 in the December reading. The index has spent much of the year below the 50 mark that separates expansion from contraction. Order backlogs were the biggest drag in December, dropping 17.2 points to 29.4. That’s the lowest since May 2009 and marked the 11th-straight month in contraction. The last time such a sharp decline was registered was 1951. New orders also sank to the lowest level since May 2009. That’s bad news for activity down the road. Still, 55.1% of survey respondents said they expect stronger demand in 2016 than in 2015.

TBTF banks will still be protected.

• EU’s Trillion Euro Bank Bail-Outs Are Over (Telegraph)

Europe has called an end to the era of mass bank bail-outs as new rules to stop taxpayers from footing the cost of financial rescues come into force. Private sector creditors will be forced to take the hit for bank failures as the EU seeks to end the age of “too big to fail”, which has cost member states more than €1 trillion since 2008. The measures – which will come into force on January 1 and apply to eurozone states – are designed to break the vicious cycle between lenders and governments that bought the single currency to its knees four years ago. Senior bondholders and depositors over €100,000 will be in line to be “bailed-in” if a bank goes bust, a departure from the mass government-funded rescues seen in Ireland, Portugal, Spain and Greece in the wake of the financial crisis.

Brussels’ tough new Bank Recovery and Resolution Directive (BRRD) will require shareholders and bond owners to incur losses of at least 8pc of their total liabilities before receiving official sector aid. Britain will not be subject to the rules. The EU’s commissioner for financial stability, Britain’s Jonathan Hill, said: “No longer will the mistakes of banks have to be borne on shoulders of the many”. Struggling banks in Italy, Portugal and Greece have rushed to recapitalise themselves in a bid to avoid falling foul of the new regime. The rules resemble the bail-in of creditors first seen in the eurozone during Cyprus’ banking crash in 2013, where savers were forced to endure losses as part of the international rescue package.

More than €1.6 trillion (£1.18 trillion) has been pumped into troubled banks by member states between October 2008 and December 2012, according to figures from the European Commission. This amounts to 13pc of the bloc’s total economic output (GDP) and imperiled the public finances of Ireland and Spain. “We now have a system for resolving banks and of paying for resolution so that taxpayers will be protected from having to bail-out banks if they go bust”, said Lord Hill. A new eurozone wide insolvency fund, the Single Resolution Mechanism, will also become operational on January 1. It will build up contributions from the banking industry over the next eight years to use in cases of financial collapse. Europe’s banks have been required to beef up their capital buffers and comply with tough new regulations in the wake of the financial crisis.

The ECB has also assumed direct supervisory responsibility for 129 “systemically” important lenders in a bid to create a fully-fledged banking union in the currency bloc. However, analysts have warned Brussels’ tentative steps towards banking union remain incomplete and could cause more uncertainty for ordinary depositors after January 1. “Taking 8pc losses from creditors has never been tested in reality”, said Nicolas Veron, of think-tank Bruegel. “The first few test cases will be very important . There is the combination of uncertainty over how the SRM will work with ECB, and then additional uncertainty over how creditor losses will work in practice.”

$10 billion in the US alone, before lawsuits?!

• VW Buybacks, Payments For Hard-to-Fix Diesels Will Be Very Costly (GCR)

Hundreds of thousands of diesel-VW owners are waiting to find out how their cars will be updated to meet emissions standards, once modifications are approved by regulators. And Volkswagen Group has clearly been tarnished by the emission-cheating scandal, which affects 11 million cars worldwide. But the costs of the entire affair remain to be tallied; some analysts have said that the $7.1 billion set aside several months ago will not be nearly enough. A Bloomberg article earlier this month cites an estimate by Bloomberg Intelligence that payments and buybacks for owners in the U.S. alone could range from $1.5 billion to $8.9 billion. And those are just the damages or buyback payments that “customers should get for being duped into buying high-polluting vehicles,” it notes.

About 157,000 of the 482,000 affected 2.0-liter TDI diesel cars sold in the U.S. with “defeat device” software are already fitted with Selective Catalytic Reduction after-treatment systems (also known as urea injection). They’re likely to require no more than software updates or perhaps minor hardware tweaks to bring them into compliance. VW then might only have to pay owners for diminished value, plus some penalty. But for 325,000 VW Golfs, Jettas, and Beetles and Audi A3 cars without the SCR systems fitted, the prognosis is much grimmer. Most analysts agree that the cost and complexity of retrofitting a urea tank, a different catalyst, and all the associated plumbing could exceed the value of cars that are now as much as seven years old. Those cars, some suggest, may all have to be bought back and either destroyed or exported.

Using an average price of $15,000, that would cost $4.9 billion alone–before any civil or criminal penalties are levied. On top of the hundreds of thousands of 2.0-liter four-cylinder TDI cars, 85,000 more VW, Audi, and Porsche vehicles were sold in the U.S. with a 3.0-liter V-6 TDI engine. That engine contains several undisclosed software routines, and one of those qualifies as a “defeat device” as well. The admission by Volkswagen that it cheated makes the case close to unique, suggests Paul Hanly, a plaintiffs’ lawyer quoted in the Bloomberg article. It may point to an early settlement, he says, since culpability doesn’t have to be established first. All that’s left is to settle on the costs and penalties. That just applies, however, to more than 450 lawsuits filed by Volkswagen customers in the wake of the mid-September disclosure.

On December 8, those lawsuits were consolidated and will be heard in California, where a high proportion of the affected TDI diesel vehicles were sold. The state also has a large number of VW dealers. Volkswagen had opposed the designation of California, asking that the suits be heard in Detroit instead. That did not happen. On top of the customer lawsuits, which will lead to cash payments and perhaps buybacks, Volkswagen faces criminal investigations in several states. But no settlements can move forward until regulators agree on modifications to the various sets of vehicles to bring them into compliance with tailpipe emission laws. Volkswagen submitted its proposals for those updates to the U.S. EPA and the California Air Resources Board in November.On December 18, CARB extended its own deadline for responding to VW’s proposal until mid-January. That leaves owners in a holding pattern at least until then, and likely far longer.

Andrew Jackson: “One man of courage makes a majority.”

• Keiser Report feat. Gerald Celente: ‘Bankism’, Oil Prices And More (RT)

In this special New Year’s Eve episode of the Keiser Report, Max Keiser and Stacy Herbert talk to trends forecaster Gerald Celente of TrendsResearch.com about the upcoming trends for 2016. They recall that a few years ago, Celente forecasted on the Keiser Report that we would see currency war, trade war and hot war, and they ask whether or not this has come true in 2015. They discuss ‘bankism’, oil prices and US election insanity and what they hold for the future of the global economy.

They should have devised a template long ago. They didn’t because the more chaos the more calls for more union.

• In Europe, 2016 Will Be The Year Of Lawsuits (Coppola)

2016 is fast approaching, and with it another phase in the EU’s attempts to make creditors pay for failed banks. The European Bank Recovery and Resolution Directive (EBRRD) has been law in all EU countries since January 2015, but up till now the bail-in rules have not been fully implemented. The EBRRD provides bank regulators with four main tools for resolving a failed bank:

• Sale of the failed bank partly or entirely to another entity
• Creation of a “bridge bank” containing the good assets, which would be sold to another entity or floated as an independent business
• Creation of a “bad bank”, or asset management vehicle, which would be gradually wound down over time (to prevent state aid rules being breached, this tool must be used in conjunction with at least one of the other tools)
• Write-down of creditor claims (or conversion to equity) in order of rank.

Mergers, “bad banks” and even “bridge” banks are all familiar tools from the financial crisis. But writing down creditor claims or converting them to shares (haircut or bail in) is more controversial. During the financial crisis, creditors – and sometimes even shareholders – were made good at taxpayer expense. But these expensive bailouts have left a very sour taste, and no-one has any appetite for them anymore. These days, creditors are expected to pay. Well, some of them, anyway. In all recent bank failures (apart from Duesseldorfer Hypothekenbank), subordinated debt holders have been bailed in, leaving senior creditors untouched. This sounds straightforward: subordinated debt holders rank junior to senior unsecured bondholders and all depositors, so should expect to lose their investments first in the event of bank insolvency.

However, bailing in subordinated debt holders has proved to be anything but simple. A roll-call of recent bail-ins shows just how difficult it can be:

• In 2013, the UK’s Co-Op Bank attempted to bail in its subordinated debt holders; but the deal failed and the subordinated debt holders took over the bank, to the considerable annoyance of the Co-Op Group (the bank’s owner), which lost the majority of its stake.

• In 2014, Portugal’s Banco Espirito Santo was split in two: subordinated debt holders were left in the residual “bad bank” along with the bank’s impaired assets, while senior and official creditors sailed off into a new entity, the aptly named Novo Banco, along with all the good assets. But the Bank of Portugal now faces lawsuits from disgruntled subordinated debt holders who claim they were never given a chance to provide more capital and rescue the bank themselves, Co-Op Bank style.

• In Austria – and increasingly in Germany too – the tangled web of claims and counterclaims in the Heta mess becomes ever more complex. These days it is not even clear exactly how the claims are ranked. The settlement agreement between Heta and the State of Bavaria in October effectively converted 60% of BayernLB’s subordinated claim into a senior claim, diluting the other senior creditors – many of whom are themselves only “senior” because of deficiency guarantees from the Province of Carinthia, which the Austrian federal government has repeatedly tried (but so far failed) to repudiate.

• In the Netherlands, the government was forced to offer compensation to SNS Reaal subordinated debt holders for its expropriation of their claims.

But why should a few problems with bail-in of subordinated debt holders spoil a good directive? Undeterred, the EU is pressing ahead with the next phase. From January 2016, senior as well as subordinated creditors will be bailed in in the event of bank insolvency. Bail-in of 8% of total liabilities (plus complete wiping of equity, of course) will be required before state aid can be granted.

Debt Rattle December 6 2015

Dec 062015

December 6, 2015 Posted by Raúl Ilargi Meijer at 10:18 am Finance Tagged with: basic income, E-Money, ECB, Greece, hot spots, jobs, OPEC, refugees, Turkey 5 Responses »

Yannis Behrakis Iranian immigrant at Greece-FYROM border 2015

• Swiss To Vote On Private Banks’ License To Create -Electronic- Money (FT)

• Finland Plans To Give Every Citizen An €800 A Month Basic Income (Quartz)

• These Ain’t Your Grandfather’s “Jobs” (David Stockman)

• ECB Lowered Stimulus Ambitions After Hitting Opposition (Reuters)

• Paralysed OPEC Pleads For Allies As Oil Price Crumbles (AEP)

• China’s Consumers Have a Long Way to Go (BBG)

• Pursuing Transparency, Pope Orders External Audit Of Vatican Assets (Reuters)

• Where Uruguay Leads, The Rest Of The World Struggles To Keep Up (Guardian)

• US Puts Request For Bigger Turkish Air Role On Hold (Reuters)

• Germany ‘Plans To Prevent Sharing Intelligence’ With NATO Ally Turkey (Telegraph)

• Greek Government Unveils Plan To Set Up Five Refugee Hotspots (Kath.)

• EU Welcomes Greek Request For Border Aid (Kath.)

• Witnessing The Migration Crisis (Yannis Behrakis)

101 revisited.

• Swiss To Vote On Private Banks’ License To Create -Electronic- Money (FT)

“Stop banks from creating money”? That sounds like killing the goose that lays the golden eggs. Aren’t private banks the reason why Switzerland has always been so rich? They don’t mean creating money in that sense. What do they mean then? They mean it literally. That’s not any clearer. Think about it this way. Do private banks have their own money printing presses so that they can mint coins and print banknotes at will? Of course not. That would be counterfeiting. Only the central bank can do that. Right. But you don’t have most of your money in physical cash, do you? No – are you crazy? It could get stolen, or I’d lose it, or my dog would eat it. Most of it is in the bank. Exactly. Most of what we think of as “money” is really a bank deposit, not cash. The UK has £70bn of notes and coins in existence – but more than £1.5tn sitting in deposits.

OK, so most money isn’t physical. Welcome to the modern world. Now are you going to explain what this Swiss initiative is about? It’s all related. As you say, of course banks don’t have their own printing presses. But what if they can create electronic money at will? That would be crazy. Just like physical counterfeiting, except they could forge much more money in much less time. And without getting ink on their fingers. Well, that’s what this Swiss referendum is about. Wait — you’re not trying to tell me banks are actually doing this, are you? That’s just what I’m telling you. Where do you think the deposits come from? Er, I never thought about it. I suppose when people go to the teller and deposit a cheque or a wad of cash, it all adds up over time. A bit hard to make £70bn add up to £1.5tn, even with a lot of time.

I see what you’re saying. So where do the deposits come from? Deposits are created from the loans banks make to customers. You’ve got that the wrong way round, no? Banks lend out the deposits they get. No. No? No. The bank decides whether it wants to make you a loan. If it does, then it simply adds the loan to its balance sheet as an asset and increases the balance in your deposit account by the same amount (that’s a liability for them). Voilà: new electronic money has been created. Just like that, at the stroke of a pen? These days, it’s more with a click of the mouse, but you have the right idea. Well, I never. I obviously realised that when I deposit money in the bank, they don’t store it in their vaults. I mean, I get how fractional reserve banking works — the banks hold deposits that are much larger than what they keep in reserve. But I assumed the amount of deposits customers put in determines how much the banks can lend out.

What do the campaigners want instead? To make electronic money issuance the prerogative of the state, like with physical cash. State e-money. People would keep deposits in the central bank, and private banks would only offer investment products or deposits backed fully by central bank reserves. It’s often called “narrow” or “limited-purpose” banking.

We’re finally waking up. Basic income gets spent into domestic economy, all stimulus all the way.

• Finland Plans To Give Every Citizen An €800 A Month Basic Income (Quartz)

The Finnish government is currently drawing up plans to introduce a national basic income. A final proposal won’t be presented until November 2016, but if all goes to schedule, Finland will scrap all existing benefits and instead hand out 800 euros per month—to everyone. It sounds far-fetched, but it’s looking likely that Finland will carry through with the idea. Whereas several Dutch cities will introduce basic income next year and Switzerland is holding a referendum on the subject, there is strongest political and public support for the idea in Finland. A poll commissioned by the government agency planning the proposal, the Finnish Social Insurance Institution or KELA, showed that 69% support (link in Finnish) a basic income plan.

Prime minister Juha Sipilä is in favor of the idea and he’s backed by most of the major political parties. “For me, a basic income means simplifying the social security system,” he says. But for those outside Finland, the plan raises two obvious questions: Why is this a good idea, and how will it work? It may sound counterintuitive, but the proposal is meant to tackle unemployment. Finland’s unemployment rate rose to 11.8% in May (though it was back down to 8.7% in October) and a basic income would allow people to take on low-paying jobs without personal cost. At the moment, a temporary job results in lower welfare benefits, which can lead to an overall drop in income. Previous experiments have shown that universal basic income can have a positive effect.

Everyone in the Canadian town of Dauphin was given a stipend from 1974 to 1979, and though there was a drop in working hours, this was mainly because men spent more time in school and women took longer maternity leaves. Meanwhile, when thousands of unemployed people in Uganda were given unsupervised grants of twice their monthly income, working hours increased by 17% and earnings increased by 38%. One of the major downsides, of course, is the cost of handing out money to every single citizen. Liisa Hyssälä, director general of Kela, has said that the plan will save the government millions. But, as Bloomberg calculated, giving €800 of basic income to the population of 5.4 million every month would cost €52.2 billion a year. The government expects to have 49.1 billion euros revenue in 2016.

Another serious consideration is that some people may be worse off under the plan. As the proposal hasn’t been published yet, it’s not yet known exactly who will lose out. But those who currently receive housing support or disability benefits could conceivably end up with less under national basic income, since the plan calls for scrapping existing benefits. And as national basic income would only give a monthly allowance to adults, a single mother of three could struggle to support herself compared to, for example, a neighbor with the same government support but no children and a part-time job.

Excellent graphs from Stockman.

• These Ain’t Your Grandfather’s “Jobs” (David Stockman)

This “Jobs Friday” ritual is getting truly absurd. So it can’t be repeated often enough: These artifacts of the BLS’ seasonally maladjusted, trend-cycle modeled, heavily imputed, endlessly crafted and five times revised “jobs” numbers have precious little to do with the real health of the main street economy. Indeed, the six-year run of job gains since early 2010 primarily represents “born-again jobs” and part-time gigs. In economic terms, they do not remotely resemble your grandfather’s industrial era economy when a “job” lasted 40 to 50 hours per week all year round; and most of what the BLS survey counted as “jobs” paid a living wage. Not now. Not even close.

The Wall Street fools who bought the dip still another time on Friday do not have the slightest clue that the US jobs market is actually quite dead. The chart below is also generated by the BLS but it measures actual labor hours employed, not job slots. It self-evidently puts the lie to the establishment survey fiction upon which the robo-machines and day traders are so slavishly focussed.

The fact is, labor hour inputs utilized by the US nonfarm business economy have “grown” at the microscopic annualized rate of 0.08% since the turn of the century. That’s as close as you can get to zero even by the standards of sell-side hair splitters, and it compares to a 2.02% CAGR during the 17 years period to Q3 2000. So let’s see. Prior to the era of full frontal money printing, labor utilization grew 25X faster than it has since the turn of the century. Yet the casino gamblers bought Friday’s more of the same jobs report hand-over-fist—-apparently on the premise that this giant monetary fraud is actually working. Not a chance. The contrast between the two periods shown in the chart could not be more dramatic. Nor do these contrasting trends encompass a mere short-term aberration.

The death of the US jobs market has been underway for a decade and one-half! Even in the establishment survey itself, the evidence of a failing jobs market is there if you separate the gigs and the low-end service jobs from the categories which represent more traditional full-pay, full-time employment. The latter includes energy and mining, construction, manufacturing, the white collar professions like architects, accountants and lawyers and the finance, insurance and real estate sectors. It also includes designers and engineers, information technology, transportation and warehousing and about 11 million full-time government employees outside of the education sector.

We have labeled this as the “breadwinner economy” because the work week averages just under 40 hours in these categories and annualized pay rates average just under $50k. These kinds of family supporting jobs were what the Labor Department bureaucrats had in mind back in the 1930s and 1940s when the current employment surveys and reports were originally fashioned.

Germany 1 – Italy 0.

• ECB Lowered Stimulus Ambitions After Hitting Opposition (Reuters)

Hints by Mario Draghi ahead of last Thursday’s ECB rate meeting that the euro zone may need another big injection of money backfired, stiffening the resolve of more conservative central bankers who criticized him for raising expectations too high, sources familiar with the discussions said. The ECB President and his chief economist Peter Praet stoked expectations with dovish speeches in the weeks before the meeting but the ECB’s Governing Council concluded that markets needed to be disappointed this time because the economic outlook has improved and new inflation forecasts were not as bad as feared, the sources said.

A pending U.S. Federal Reserve rate hike also factored into the decision, though to a lesser extent, as policymakers were concerned that a big move by the ECB would weaken the euro further and possibly force the Fed to delay its own action on rates to prevent a too rapid divergence of policy between the world’s top two central banks. The ECB cut its deposit rate on Thursday and extended its monthly asset buys by six months to boost stubbornly low inflation and lift growth. But the moves were considered by markets to be the bare minimum in the light of the bank’s previous signals.

One source with direct knowledge of the situation interpreted Draghi’s public stance ahead of the meeting as trying to pressure the Governing Council to take bigger action. “Draghi raised expectations too high, on purpose, and attempted to paint the Governing Council into a corner,” the source said. “This was problematic and he was criticized for this by several governors in private.” Unlike last year, when opponents of quantitative easing made their stance public before the decision, the hawks mostly worked behind the scenes.

You first! Nobody can afford to cut production. It’s what happens in deflation.

• Paralysed OPEC Pleads For Allies As Oil Price Crumbles (AEP)

The Opec cartel is to continue flooding the world with crude oil despite a chronic glut and the desperate plight of its own members, demanding that Russia, Kazakhstan and other producers join forces before there can be output cuts. Brent prices tumbled almost $2 a barrel to $42.90 as traders tried to make sense of the fractious Opec gathering in Vienna, which ended with no production target and no guidance on policy. It reeked of paralysis. Prices are poised to test lows last seen at the depths of the financial crisis in early 2009. The shares of oil companies plummeted in London, and US shale drillers went into freefall on Wall Street. “Lots of people said Opec was dead. Opec itself has just confirmed it,” said Jamie Webster, head of HIS Energy.

Venezuela’s oil minister, Eulogio del Pino, pushed for a cut in output of 1.5m barrels a day (b/d) to clear the market, describing the failure to act as calamitous. “We are really worried,” he said. Abdallah Salem el-Badri, Opec’s chief, conceded that the cartel’s strategy has been reduced to an impotent waiting game, hoping that the pain of low prices will lure Russia and other global producers to the table. “We are looking for negotiations with non-Opec, and trying to reach a collective effort,” he said. Mr el-Badri said there have been “positive” noises from some but none is yet ready to lock arms and create a sort of super-Opec, able to dictate prices. “Everybody is trying to digest how they can do it,” he said.

The cartel’s 12 members postponed a decision on their next step until next year, once they know how much oil Iran will sell after sanctions are lifted. “The picture is not really clear at this time, and we are going to look one more time in June,” he said. “Everybody is worried about prices. Nobody is happy,” said Iraq’s envoy, Adel Abdul Mahdi. His country has lost 42pc of its fiscal revenues and is effectively bankrupt. Foreign companies are owed billions and have begun to freeze projects. The government cannot afford to pay its own security forces and is cutting vital funding for anti-ISIS militias, raising fears that the political crisis could spin out of control. Helima Croft, from RBC Capital Markets, said four of the frontline states in the fight against ISIS are now being destabilized by the crash in oil prices, including Algeria and Libya.

Opec leaders will now have to grit their teeth and prepare for a long siege, testing their social welfare models to the point of destruction. Even Saudi Arabia is pushing through drastic austerity measures. Deutsche Bank said the fiscal break-even cost needed to balance the budget is roughly $120 for Bahrain, $100 for Saudi Arabia, $90 for Nigeria and Venezuela, and $80 for Russia, based on current exchange rate effects. “It is going to be 12 to 18 months before they see any relief,” David Fyfe, from the oil trading group Gunvor, said. “We think oil stocks will continue to build in the first half of next year and we don’t think they will draw down to normal levels until well into 2017.”

Not a great article. But the underlying idea is important: China will not be saved by consumers. “According to the World Bank, Chinese household consumption added up to $3.4 trillion in 2013, compared with $11.5 trillion in the U.S. and $10.3 trillion in the European Union.”

• China’s Consumers Have a Long Way to Go (BBG)

The Chinese growth miracle of the past few decades has been driven by investing and exporting, not consumer spending. Lately, though, we’re hearing a lot about a “great rebalancing” in which domestic buyers of cars, phones, clothes, health-care and other consumer goods and services come to play a much bigger role in China’s economy. This would be swell – both for China and for a global economy that’s also in need of some balance. Before we all get excited about it, though, it’s important to remember just how unbalanced China’s economy is. In 2011, the latest year for which comparative data is available, [consumption] represented 28% of real GDP, compared with 76% in the United States, 67% in Brazil, 60% in Japan, 59% in Germany, and 52% in India. That’s from “Sold in China: Transitioning to a Consumer Led Economy,” a report released this summer by the Demand Institute, a joint venture of the Conference Board and Nielsen. So is this:

The shrinking of consumption’s share of China’s economy started well before 1999 – in 1952, consumption made up 76% of economic activity. It can’t keep going down forever, and all signs are that its decline has halted since 2011. But the likeliest path forward, again according the Demand Institute, will be one in which consumption stays stuck at a relatively low %age of GDP. That’s based on an examination of economic development in 167 countries from 1950 to 2011, which found that: Countries whose underlying economic characteristics were similar to China’s generally saw consumption remain flat relative to GDP for a considerable period after it stopped falling.

What that translates to, according to yet another Demand Institute report released last month, is a forecast of aggregate consumer spending growth in China of 5.2% a year for the next 10 years. That’s much faster than the growth in consumer demand we’re likely to see in any other major economy during that period – so multinational corporations with stuff to sell will continue to be very interested in the place. But that growth will remain concentrated in a relatively small number of cities, a lot of the money will be spent on domestically produced services and the growth probably won’t be enough for China to serve as a major engine of global consumer demand just yet.

It certainly hasn’t taken on that role this year. Reports Bloomberg News: “China’s trade imbalance with the rest of the world is rising, with the nation’s current-account surplus swelling as a share of the global economy. Much of that has been driven by a rising merchandise trade excess – which is set for a record this year – thanks to sliding imports due in part to commodity-price declines that have walloped natural-resource providers.” Commodity prices will eventually stop declining. Chinese consumers will, barring an economic meltdown, keep increasing their spending. The rebalancing will continue. It just has a long, long way to go before the Chinese economy or the global economy is actually balanced.

PwC? Really?

• Pursuing Transparency, Pope Orders External Audit Of Vatican Assets (Reuters)

The Vatican said on Saturday it had ordered the first external audit of its assets as part of a drive by Pope Francis to bring transparency to its finances where millions of euros have gone unrecorded without any central oversight. Papal spokesman Federico Lombardi said auditors PricewaterhouseCoopers would start work immediately. The pope has promised to overhaul the Vatican’s murky financial management, which have been hit by repeated scandals in recent years, however he has met resistance from Church officials who want to maintain tight control over operations. Lombardi told reporters that the Vatican’s Secretariat for the Economy had called on PwC, the world’s second-largest audit firm by revenue, to review the Vatican’s consolidated financial statements, which includes assets, income and expenses.

The decision to work with one of the world’s top four auditors continued “the implementation of new financial management policies and practices in line with international standards,” he said. A Vatican financial statement this year revealed that Vatican departments had stashed away €1.1 billion of assets that were not declared on any balance sheet. The head of the economy secretariat, Cardinal George Pell, said last year that departments had “tucked away” millions of euros and followed “long-established patterns” in jealously managing their affairs without reporting to any central accounting office. Pope Francis picked Pell, an outsider from the English-speaking world, to oversee the Vatican’s often muddled finances after decades of control by Italian clergy. Since the pope’s election in March, 2013, the Vatican has enacted major reforms to adhere to international financial standards and prevent money laundering.

Sunday feel good story.

• Where Uruguay Leads, The Rest Of The World Struggles To Keep Up (Guardian)

As the world’s most powerful nations squabbled in Paris over the cost of small cuts to their fossil fuel use, Uruguay grabbed international headlines by announcing that 95% of its electricity already came from renewable energy resources. It had taken less than a decade to make the shift, and prices had fallen in real terms, said the head of climate change policy – a job that doesn’t even exist in many countries. This announcement came on top of a string of other transformations. In 2012 a landmark abortion law made it only the second country in Latin America, after Cuba, to give women access to safe abortions. The following year, gay marriage was approved, and then-president José Mujica shepherded a bill to legalise marijuana through parliament, insisting it was the only way to limit the influence of drug cartels.

What’s more, the country cracked down so strongly on cigarette advertising, in a successful bid to cut smoking rates, that it is now being sued by tobacco giant Philip Morris. Mujica himself became internationally famous for refusing to enjoy the trappings of presidential power – staying in his tiny house rather than moving into the official mansion – and giving away 90% of his salary. To those who have never taken much interest in South America’s second smallest country, Uruguay seems to be quietly reinventing itself as a beacon of innovation and progress. In fact, the changes fit into a long progressive tradition, stretching back over a century and a half, celebrated by Peruvian literary giant Mario Vargas Llosa in a recent tribute to Mujica’s initiatives on gay marriage and marijuana.

In the 1870s, Uruguay pioneered universal, free, secular education, the first Latin American country to make it compulsory for every child to attend school. That focus on education has its echoes in a modern-day policy to give every student a laptop. It was also one of the first countries in the region to give women the right to vote, and legalised divorce in 1907. That was decades ahead of other South American countries, and nearly a century ahead of nearby Chile, which only passed a similar law in 2004. “We must remember that Uruguay, in contrast with most Latin American countries, has a long and solid democratic tradition, to the extent that when it was a young nation it was known as ‘the Switzerland of America’ for the strength of its civil society, deep-rooted rule of law, and for armed forces which are respectful of the constitutional government,” said Vargas Llosa.

He traced many of those traditions back to the rule of early-20th-century president José Batlle y Ordóñez, who fought for workers’ rights and universal suffrage, abolished the death penalty and laid the foundations of the welfare state. The country’s level of education, cultural life and civic mindedness had made it “the envy of all the continent”, he added. Not all of Batlle’s successors were interested in his progressive legacy. The country came under the rule of a military dictatorship from 1973 to 1985, when generals jailed huge numbers of political prisoners and earned Uruguay the nickname “the torture chamber of Latin America”. But this century it has been returning to its political roots, to become a model not just for the region, but for the world.

Lunacy for Washington to support Erdogan in fighting Kurds. They’re the ones most effective vs ISIS.

• US Puts Request For Bigger Turkish Air Role On Hold (Reuters)

Since Turkey shot down a Russian fighter jet last week, the United States has quietly put on hold a long-standing request for its NATO ally to play a more active role in the U.S.-led air war against Islamic State. The move, disclosed to Reuters by a U.S. official, is aimed at allowing just enough time for heightened Turkey-Russia tensions to ease. Turkey has not flown any coalition air missions in Syria against Islamic State since the Nov. 24 incident, two U.S. officials said. The pause is the latest complication over Turkey’s role to have tested the patience of U.S. war planners, who want a more assertive Turkish contribution – particularly in securing a section of border with Syria that is seen as a crucial supply route for Islamic State.

As Britain starts strikes in Syria and France ramps up its role in the wake of last month’s attacks on Paris by the extremist group, U.S. Defense Secretary Ash Carter publicly appealed this week for a greater Turkish military role. The top U.S. priority is for Turkey to secure its southern border with Syria, the first official said. U.S. concern is focused on a roughly 60-mile stretch used by Islamic State to shuttle foreign fighters and illicit trade back and forth. But the United States also wants to see more Turkish air strikes devoted to Islamic State, even as Washington firmly supports Ankara’s strikes against Turkey’s Kurdistan Workers Party (PKK), viewed by both countries as a terrorist group. Carter told a congressional hearing this week that most Turkish air operations have been targeted at the PKK rather than at Islamic State, but U.S. officials acknowledge some promising signs from Turkey, including moves to secure key border crossings.

Turkey bombs NATO allies. Well, I’ll be darned…

• Germany ‘Plans To Prevent Sharing Intelligence’ With NATO Ally Turkey (Telegraph)

Germany has reportedly drawn up plans to prevent sharing intelligence with its Nato ally Turkey as it prepares to support international air strikes against Islamic State of Iraq and the Levant (Isil). German Tornado aircraft are to commence reconnaissance flights over Syria and Iraq after the country’s parliament on Friday voted to deploy up to 1,200 military personnel. Highly unsual measures have been ordered to prevent Turkey getting access to intelligence from the flights, according to Spiegel magazine. The aircaft are expected to operate from Incirlik airbase in southern Turkey, and as Nato allies, the two countries would normally expect to share intelligence. But German commanders are concerned Turkey may use surveillance information from the flights to direct attacks against Kurdish forces allied to the West.

Ankara has been carrying out its own air strikes against the Kurdistan Workers’ Party (PKK) in south-east Turkey and Iraq as well as People’s Defence Units (YPG) in Syria. Two German officers have been given the sole task of ensuring no intelligence is shared with Turkey that could be used to target these groups, according to Spiegel. They will seek to ensure that German Tornados are not used for reconnaissance missions near the Turkish border. If the aircaft accidentally stray into the area, they will prevent the data from the flights being passed to Turkey. The German parliament on Friday approved plans to deploy up to 1,200 military personnel in support of the air strikes by 445 votes to 146. Six Tornados will be sent to the region together with a refuelling aircraft and a naval frigate.

The German forces will not take part in combat missions directly but will provide reconnaissance flights and force protection. The frigate is being deployed to support the French aircraft carrier Charles de Gaulle, which is already in the region. The deployment is a break with Germany’s traditional reluctance to get involved in overseas wars because of its Nazi past. “It’s a question of responsibility for us to take action. We’ve watched for long enough,” Norbert Röttgen of Angela Merkel’s Christian Democrat party told fellow MPs in the debate before the vote. “Anyone who votes in favour is leading Germany into a war with completely unclear risks of escalation. Instead of combating Isil, you’re strengthening it,” Sahra Wagenknecht, of the opposition Left Party, said.

Frontex will be the boss.

• Greek Government Unveils Plan To Set Up Five Refugee Hotspots (Kath.)

Only days after requesting European Union help in tackling the ongoing migrant and refugee crisis, the Greek government has unveiled plans to set up five so-called hotspots to register and identify arrivals. The decision, which was published early Saturday in the Government Gazette, foresees the creation of screening centers on the eastern Aegean islands of Chios, Kos, Leros, Samos and Lesvos. Their operation will fall under the responsibility of the Southern and Northern Aegean regional authorities and will rely on Defense Ministry technical infrastructure and personnel.

The decision designates the areas which will host the registration centers on Lesvos, Leros and Kos. Details on the Samos and Chios facilities are to be announced in the coming days. Local authorities reacted to the news, saying they had been caught unawares by the government’s decision. In a statement on Saturday, [opposition party] New Democracy’s local organization on Kos said it opposed the creation of a hotspot on the island, describing it as a “catastrophic move for Greece’s fourth biggest tourism destination.”

All it takes is 15 votes, and you’re occupied: “One option could be not to seek the member-state’s approval for deploying Frontex but activating it by a majority vote among all 28 members..”

• EU Welcomes Greek Request For Border Aid (Kath.)

The European Commission on Friday welcomed a decision by the Greek government to request help from European Union-flagged patrols and emergency workers in monitoring its borders and screening asylum seekers fleeing conflict in the Middle East, amid reports that Brussels is mulling the formation of a special force to beef up the Schengen Area. Speaking in Brussels on Friday, Commission spokesman Margaritis Schinas said that Greece’s decisions to activate the bloc’s Civil Protection Mechanism, to allow EU agency Frontex to help with the registration of migrants on the border with the Former Yugoslav Republic of Macedonia (FYROM), and to trigger the Rapid Border Intervention Teams mechanism (RABIT) for extra patrols in the Aegean were “in the right direction.”

Schinas said that Greece, which is in the front line of Europe’s migration and refugee crisis, has pledged to set up another four so-called hot spots on an equal number of Aegean islands. A first hot spot is already in operation on Lesvos. “We hope to have concrete, tangible progress on the ground” before an EU summit on December 17 where migration will be on the agenda, he added. Greece’s decision came amid reported threats from several EU governments that the country risked being kicked out of the Schengen zone of passport-free travel because of its leaky frontier. The SYRIZA-led government on Friday sought to fend off criticism of foot-dragging, saying it was the EU that failed to meet repeated Greek calls for aid.

“Since May, Greece has persistently been asking for technical, technological and staffing help, and what it has received from Europe is far less than what was asked for,” Alternate Minister for European Affairs Nikos Xydakis told The Associated Press, adding that Greece needed 750 but initially received only 350 staff from Frontex. Xydakis said that about 100 more border guards had arrived in recent days. In comments Friday, European Migration and Home Affairs Commissioner Dimitris Avramopoulos sought to take some of the pressure off Athens, saying that Schengen should be made “part of the solution.” “It is precisely by applying the rules, by using the system, that we ensure the safety of our citizens. We should focus on strengthening and improving Schengen, not breaking it down.”

Meanwhile, reports on Friday said the EU is mulling a measure that would grant a special EU border force powers to step in and guard a member-state’s external frontier to protect Schengen. The EU’s executive is expected to propose the establishment of the unit on December 15. It is unclear if operations would require prior invitation from the member-state in question. “One option could be not to seek the member-state’s approval for deploying Frontex but activating it by a majority vote among all 28 members,” an unidentified EU official told Reuters. But such a move is not expected to sit well among member-states wary of potential sovereignty loss.

Lovely pictures.

• Witnessing The Migration Crisis (Yannis Behrakis)

I have been covering refugees and migrants for over 25 years. The difference this time was that migrants were arriving in my homeland. A couple of boats arrived every night. Everybody aboard was scared as they didn’t know how the police and locals would react. Small dinghies kept on arriving, even when the weather was rough. The Turkish coast was just 4-5 km away. To start with the migrants were scared, unsure. They arrived overnight because they were hiding. Each time they saw a photographer or a local they thought it was the police about to arrest them. Sometimes they got frightened and even “surrendered” occasionally, lifting their arms. I shouted welcome to reassure them. Once on land they started laughing and giving “high fives”. The atmosphere was charged with emotion.

Nobody expected there would be so many of them. The local community wasn’t prepared but most Greeks have some refugee blood and locals realised that these people only wanted to use Greece as a stepping-stone to move north. There were families including children and old women. So people thought, “We need to help them”. At the beginning of a situation like this there is always some mistrust among both migrants and locals. Soon migrants came to realise that people were friendly on the island of Kos and the police wouldn’t arrest them. Gradually they were more open and less fearful.

It was very quiet on the island before the tourist season started. I waited for two or three boats a night. I could hear the engines from the beaches. Moonlit nights can help a little to figure out where the boats are. In the mornings I went to the abandoned Captain Elias Hotel, where most of the migrants and refugees were put up, to take more pictures. The weather was good, so the migrants would camp on the beach, around the port or the town centre. The U.N. refugee agency UNHCR and Medecins Sans Frontieres, or Doctors without Borders, also arrived on the island to help. The migrants queued outside the police station to get temporary documents. Once they had those papers they could then buy a ticket to Athens and continue north.

One day I was photographing a raft in Lesbos. I noticed a movement and thought somebody had jumped overboard. I focused using a long lens and saw the fin of a dolphin. The dolphin jumped almost in front of the raft. It was a truly magic moment. It was as if the dolphin was showing the way and welcoming the people on the raft. [..] The least challenging part of the assignment was taking pictures. The difficulty was the emotional involvement in the story. It was disappointing to see the same thing happening again and again.

Debt Rattle November 7 2015

Nov 072015

November 7, 2015 Posted by Raúl Ilargi Meijer at 9:33 am Finance Tagged with: care homes, China, credit, debt, jobs, overcapacity, rate hike, refugees, steel, VW Comments Off

Russell Lee Front of livery stable, East Side, New York City 1938

• US Looks Set For December Interest Rate Rise After Jobs Boost (Guardian)

• US Jobs Report: Workers Aged 25-54 Lose 35K Jobs, 55+ Gain 378K (Zero Hedge)

• Peter Schiff: It’s Going To Be A ‘Horrible Christmas’ (CNBC)

• US Consumer Credit Has Biggest Jump In History, Government-Funded (Bloomberg)

• Primary Dealers Are Liquidating Corporate Bonds At An Unprecedented Pace (ZH)

• Will China’s Consumers Step Up In 2016? (Bloomberg)

• China’s Demand For Cars Has Slowed. Overcapacity Is The New Normal. (Bloomberg)

• World’s Largest Steel Maker ArcelorMittal Loses $700 Million in Q3 (NY Times)

• Berlin Accomplices: The German Government’s Role in the VW Scandal (Spiegel)

• EU Asks Members To Investigate After VW Admits New Irregularities (Reuters)

• VW Says Will Cover Extra CO2 And Fuel Usage Taxes Paid By EU Drivers (Guardian)

• Goldman Sachs Dumps Stock Pledged By Valeant Chief (FT)

• New Countdown For Greece: A Bank Bail-In Is Looming (Minenna)

• UK Care Home Sector In ‘Meltdown’, Threatened By US Vulture Fund (Ind.)

• US Congress Proposes A Chilling Resolution On Social Security (Simon Black)

• Germany Imposes Surprise Curbs On Syrian Refugees (Guardian)

• Germany Receives Nearly Half Of All Syrian Asylum Applicants (Guardian)

• Sweden Feels The Refugee Strain (Bloomberg)

• Sweden Tells Refugees ‘Stay in Germany’ as Ikea Runs Out of Beds (Bloomberg)

• Greek Coast Guard: Five More Migrants Found Dead (Kath.)

We -should- know better than to trust US jobs reports.

• US Looks Set For December Interest Rate Rise After Jobs Boost (Guardian)

The US appears to be on course for its first interest rate rise in almost a decade next month after higher than expected job creation pushed the unemployment rate down to 5%. Non-farm payrolls – employment in all sectors barring agriculture – increased by 271,000 in October, according to official figures published on Friday, compared with 142,000 the previous month and above the 185,000 that economists polled by Reuters had expected. In September, the US Federal Reserve signalled that, barring a deterioration in the US economic recovery, it would raise rates from 0.25% at its December meeting. Janet Yellen, the head of the Federal Reserve, repeated her forecast a few days ago.

Analysts said the prospect of a rate rise was now almost certain, especially after figures from the US labor department also showed wages increased at a healthy 0.4% month on month. The dollar jumped by more than 1% to a seven-month high and benchmark US bond yields rose to their highest in five years as traders priced in a 72% chance of a move next month. Stock market futures on New York exchanges slipped as it became clearer that a long period of cheap borrowing costs was coming to an end. The rise in pay took the wage inflation rate to 2.5% year on year, the best annual wages boost since 2009, when it was falling in the aftermath of the financial crisis.

Growth in jobs occurred in industries including professional and business services, healthcare, retail, food services and construction, according to Tanweer Akram, a senior economist at Voya Investment Management. Rob Carnell, an analyst at ING Financial Markets, said: “While this does not guarantee a December rate hike from the Fed at this stage [there is one more labour report before the December 16 meeting], we feel that we would need to see a catastrophically bad November labour report for the Fed to sit on their hands again.”

And there we go again: it’s all a sleight of hand.

• US Jobs Report: Workers Aged 25-54 Lose 35K Jobs, 55+ Gain 378K (Zero Hedge)

After several months of weak and deteriorating payrolls prints, perhaps the biggest tell today’s job number would surprise massively to the upside came yesterday from Goldman, which as we noted earlier, just yesterday hiked its forecast from 175K to 190K. And while as Brown Brothers said after the reported that it is “difficult to find the cloud in the silver lining” one clear cloud emerges when looking just a little deeper below the surface. That cloud emerges when looking at the age breakdown of the October job gains as released by the BLS’ Household Survey. What it shows is that while total jobs soared, that was certainly not the case in the most important for wage growth purposes age group, those aged 25-54.

As the chart below shows, in October the age group that accounted for virtually all total job gains was workers aged 55 and over. They added some 378K jobs in the past month, representing virtually the entire increase in payrolls. And more troubling: workers aged 25-54 actually declined by 35,000, with males in this age group tumbling by 119,000! Little wonder then why there is no wage growth as employers continue hiring mostly those toward the twilight of their careers: the workers who have little leverage to demand wage hikes now and in the future, something employers are well aware of. The next chart shows the break down the cumulative job gains since December 2007 and while workers aged 55 and older have gained over 7.5 million jobs in the past 8 years, workers aged 55 and under, have lost a cumulative total of 4.6 million jobs.

Schiff always see some right signs, and then always finds it hard to interpret them.

• Peter Schiff: It’s Going To Be A ‘Horrible Christmas’ (CNBC)

The Grinch has nothing on Peter Schiff. On CNBC’s “Futures Now” Thursday, the contrarian investor said that while Americans are wrapping presents this holiday season, they should instead brace themselves for “a horrible Christmas” and possible recession. “I expect [job] layoffs to start picking up by the end of the year,” Schiff said, pointing to retailers as the first victim. “Retailers have overestimated the ability of their customers to buy their products. Americans are broke. They are loaded up with debt,” he said. “We’re teetering on the edge of an official recession,” and “the labor market is softening.” For Schiff, there is no one else to blame but the Federal Reserve.

As he sees it, the central bank’s easy money policies have created a bubble so big that any prick could send the U.S. economy spiraling out of control. And that makes the possibility of hiking interest rates slim to none. “The Fed has to talk about raising rates to pretend the whole recovery is real, but they can’t actually raise them,” said the CEO of Euro Pacific Capital. “[Fed Chair Janet Yellen] can’t admit that she can’t raise them because then she’s admitting the whole recovery is a sham and that the policy was a failure.” According to Schiff, the recent rally in the dollar is “the biggest bubble that the Fed has ever inflated” and “it’s the only thing keeping the economy afloat.”

The greenback hit a three-month high this week after Yellen said a December rate hike was a “live” possibility. “[The inflated dollar] is keeping the cost of living from rising rapidly and it’s keeping interest rates artificially low. It’s allowing the Fed to pretend everything is great,” Schiff said. “Eventually the bottom is going to drop out of the dollar and we are going to have to deal with reality,” he added. “That reality is we are staring at a financial crisis much worse than the one we saw in 2008.”

It’s all still built on debt, and increasingly so. The more ‘confident’ the consumer, the more willing (s)he’s to put her neck in a noose.

• US Consumer Credit Has Biggest Jump In History, Government-Funded (Bloomberg)

Borrowing by American households rose at a faster pace in September on increased lending for auto purchases and bigger credit-card balances. The $28.9 billion jump in total credit followed a $16 billion gain in the previous month, Federal Reserve figures showed Friday. Non-revolving debt, which includes funding for college tuition and auto purchases, rose $22.2 billion, the most since July 2011. Borrowing probably remained elevated in October in the wake of the strongest back-to-back months of motor vehicle sales in 15 years. Having made progress in restoring their balance sheets after the last recession, some households are more willing to finance purchases as the labor market continues to improve.

The median forecast of 31 economists surveyed by Bloomberg called for an $18 billion increase in credit, with estimates ranging from gains of $10 billion to $26 billion. The Fed’s consumer credit report doesn’t track debt secured by real estate, such as home equity lines of credit and home mortgages. The pickup in non-revolving credit in September followed a $12 billion increase the previous month. Revolving debt rose $6.7 billion, the biggest gain in three months, after a $4 billion advance, the data showed.

The biggest threat to US markets?

• Primary Dealers Are Liquidating Corporate Bonds At An Unprecedented Pace (ZH)

By now it is common knowledge that over the past two years the primary source of stock buying have been corporations themselves (recall Goldman’s admission that “buybacks have been the largest source of overall US equity demand in recent years”) with two consecutive years of near record stock repurchases. However, now that a December rate hike appears practically certain following the “pristine” October jobs report, suddenly the question is whether the recent strong flows into bond funds will continue, and generously fund ongoing repurchase activity. The latest fund flow report from BofA puts this into perspective

“The increase in interest rates is starting to impact US mutual fund and ETF flows. Hence, the inflow into the all fixed income category declined to +$0.96bn this past week (ending on October 4th) from a +$2.80bn inflow the week before… Outflows from government funds accelerated further to -$2.43bn this past week from -$1.73bn and -$1.00bn in the prior two weeks, respectively.”

But more concerning for corporations than even fund flows, which will surely see even bigger outflows now that both yields are spreads are set to blow out making debt issuance far less attractive to corporations whose cash flows continue to deteriorate, is what the NY Fed reported as activity by Primary Dealer, i.e., the most connected, “smartest people in the room” who indirectly execute the Fed’s actions in the public markets, in the most recent week. As the charts below show, the Primary Dealers aren’t waiting for the December announcement to express how they feel about their holdings of both Investment Grade and Junk Bond (mostly in the longer, 5-10Y, 10Y+ maturity buckets where duration risk is highest). Indeed, as of the week ended October 28, Primary Dealer corporate holdings tumbled across both IG and HY, plunging to the lowest level in years in what can only be called a rapid liquidation of all duration risk.

Investment Grade Bonds:

And Junk Bonds:

Why would dealers be liquidating their corporate bond portfolios at such a fast pace? For junk, the obvious answer is that with ongoing concerns around rising leverage, not to mention yields being dragged higher by the ongoing pain in the energy sector, this may be merely a proactive move ahead of even more selling. But for IG the answer is less clear, and the selling likely suggests fears that any December rate hike will see spreads blow out even further, and as a result dealers are cutting their exposure ahead of December.

Whatever the answer keep a close eye on this series: if Dealer net positions turn negative it will mean that the corporate buyback door is about to slam shut in a hurry as others begin imitating the ‘smartest and most connected traders in the room’, depriving corporations of their biggest source of stock buyback “dry powder.” In fact, taken to its extreme, if companies suddenly find it problematic to raise capital using debt, we may soon enter that phase of the corporate cycle best known by a spike in equity issuance, whose impact on stock price is just the opposite to that of buybacks.

Not a chance. They’re scared to bits.

• Will China’s Consumers Step Up In 2016? (Bloomberg)

)China’s practice of laying out five-year economic plans is a legacy of its Maoist past. And so, as the Communist Party has done since the 1950s, officials met in Beijing in October to hash out the plan to take the world’s second-biggest but now struggling economy from 2016 to 2020. Policymakers have two big goals. In 2016 they’ll continue to feature the consumer as the star of a hoped-for economic resurgence. They’ll also try to ensure by any means necessary that gross domestic product doesn’t slow rapidly, even if that involves injecting more credit into overleveraged, declining industries. China will target “medium-high economic growth,” the Party said in an Oct. 29 communiqué after meeting to discuss the new five-year plan.

Those two goals—fostering a consumer economy and giving GDP a short-term boost—are contradictory. Developing a consumption-driven economy means accepting growth below the 7%+ annual rise of recent years, which was achieved in part by state-run banks and local government finance companies giving enterprises cheap credit to build often unneeded factories and real estate developments. For many economists, it’s a no-brainer to switch to this slower-growing but more sustainable model, one that relies on a strong service sector and robust household consumption. The dramatic growth of the last 35 years has brought serious industrial overcapacity, a polluted environment, and declining productivity even as the workforce shrinks.

In October, days after the announcement that GDP rose in the third quarter at a rate of 6.9% from a year earlier, the slowest pace since 2009, the central bank cut rates for the sixth time in a year. It also lowered the amount of funds banks must hold in reserve, allowing them to make more loans. Economic planners have loosened curbs on borrowing by local officials and stepped up approvals of railway and costly environmental projects. Says Andrew Polk, senior economist at the Conference Board China Center for Economics and Business in Beijing: “Cutting interest rates and adding fiscal spending are temporary salves to much bigger problems. The leadership has very little power to stop the slide in growth into next year.”

In the first quarter of 2015, for the first time, service industries—including jobs from lawyers to tourist guides—made up a bit more than half of GDP. The service economy grew 8.4% in the first nine months; manufacturing, only 6%. “The answer to the question of whether China’s economy is sinking or swimming lies in its service sector,” wrote Capital Economics’ Mark Williams and Chang Liu in an Oct. 29 note. Service companies employ more people than manufacturers to generate the same amount of GDP. Not only are service workers more numerous, they’re also often better paid than factory hands. More Chinese with more money in their pockets should nurture consumption. To date, that’s been hard to engineer, with households socking away about 30% of disposable income, one of the world’s highest savings rates. Household consumption makes up only a little more than one-third of GDP. (In the U.S., consumption is almost 70% of the economy.)

Overcapacity is China’s 2016 key word.

• China’s Demand For Cars Has Slowed. Overcapacity Is The New Normal. (Bloomberg)

For much of the past decade, China’s auto industry seemed to be a perpetual growth machine. Annual vehicle sales on the mainland surged to 23 million units in 2014 from about 5 million in 2004. That provided a welcome bounce to Western carmakers such as Volkswagen and General Motors and fueled the rapid expansion of locally based manufacturers including BYD and Great Wall Motor. Best of all, those new Chinese buyers weren’t as price-sensitive as those in many mature markets, allowing fat profit margins along with the fast growth. No more. Automakers in China have gone from adding extra factory shifts six years ago to running some plants at half-pace today—even as they continue to spend billions of dollars to bring online even more plants that were started during the good times.

The construction spree has added about 17 million units of annual production capacity since 2009, compared with an increase of 10.6 million units in annual sales, according to estimates by Bloomberg Intelligence. New Chinese factories are forecast to add a further 10% in capacity in 2016—despite projections that sales will continue to be challenged. “The Chinese market is hypercompetitive, so many automakers are afraid of losing market share,” says Steve Man, a Hong Kong-based analyst with Bloomberg Intelligence. “The players tend to build more capacity in hopes of maintaining, or hopefully, gain market share. Overcapacity is here to stay.” The carmaking binge in China has its roots in the aftermath of the global financial crisis, when China unleashed a stimulus program that bolstered auto sales.

That provided a lifeline for U.S. and European carmakers, then struggling with a collapse in consumer demand in their home markets. Passenger vehicle sales in China increased 53% in 2009 and 33% in 2010 after the stimulus policy was put in place. But the flood of cars led to worsening traffic gridlock and air pollution that triggered restrictions on vehicle registrations in major cities including Beijing and Shanghai. Worse, the combination of too many new factories and slowing demand has dragged down the industry’s average plant utilization rate, a measure of profitability and efficiency. The industrywide average plunged from more than 100% six years ago (the result of adding work hours or shifts) to about 70% today, leaving it below the 80% level generally considered healthy. Some local carmakers are averaging about 50% utilization, according to the China Passenger Car Association.

And this is what China’s overcapacity leads to.

• World’s Largest Steel Maker ArcelorMittal Loses $700 Million in Q3 (NY Times)

ArcelorMittal, the world’s largest steel maker, on Friday reported a $700 million loss for the third quarter, blaming falling prices and competition from Chinese exports. In a news release, the company said that customers were hesitating to buy its products and that “unsustainably low export prices from China,” which produces far more steel than any other country, had hurt its bottom line. Lakshmi N. Mittal, the company’s chief executive, said in an interview on Friday that steel demand in the company’s main markets, Europe and North America, was healthy, but that low-cost Chinese steel was depressing prices. “The Chinese are dumping in our core markets,” Mr. Mittal said. “The question is how long the Chinese will continue to export below their cost.”

The company’s loss for the period compared with a $22 million profit for last year’s third quarter. ArcelorMittal, which is based in Luxembourg, also sharply cut its projection for 2015 earnings before interest, taxes, depreciation and amortization — the main measure of a steel company’s finances. The new estimate is $5.2 billion to $5.4 billion, down from the previous projection of $6 billion to $7 billion. On a call with reporters, Aditya Mittal, Mr. Mittal’s son and the company’s chief financial officer, said that a flood of low-price Chinese exports was the biggest challenge for ArcelorMittal in the European and North American markets. The company estimates that Chinese steel exports this year will reach 110 million metric tons, compared with 94 million tons last year and 63 million tons in 2013. ArcelorMittal produced 93 million metric tons of steel in 2014.

ArcelorMittal is one of several companies operating in the United States that have brought complaints against the dumping of Chinese steel. On Tuesday, the United States Commerce Department issued a preliminary ruling in those companies’ favor in one product category, saying it would impose tariffs of up to 236% on imports of corrosion-resistant steel from some Chinese companies, on the grounds that their products are subsidized by the government. “That clearly shows there is substance in the trade cases,” Lakshmi Mittal said.

Berlin fails. Having VW investigate itself is crazy.

• Berlin Accomplices: The German Government’s Role in the VW Scandal (Spiegel)

This week wasn’t just a bad one for the Volkswagen concern. The German government is also happy that it’s over. Berlin had painstakingly developed a damage control strategy in an effort to prevent the VW scandal from damaging the reputation of German industry as a whole. Top advisors to Foreign Minister Frank-Walter Steinmeier had even written a confidential letter to German diplomats around the world, providing guidelines for how they should go about defending “the Germany brand.” “The emissions scandal should be presented as a singular occurrence,” they wrote. “External communication” should focus “to the extent possible on preventing VW and the ‘Made in Germany’ brand from being connected.”

But then Monday arrived and the announcement by the Environmental Protection Agency in the United States that “VW has once again failed its obligation to comply with the law that protects clean air for all Americans.” In addition to the 11 million diesel vehicles whose emissions values were manipulated, additional models are also thought to have been outfitted with illegal software to cheat on emissions compliance tests, including the popular SUV Cayenne. That vehicle is manufactured by Porsche, the company that VW’s new CEO, Matthias Müller, used to lead before being hired to replace Martin Winterkorn, who was ousted when the VW scandal first broke. Then Tuesday arrived, and along with it the admission from Müller that VW had deceived even more of its customers.

The fuel consumption claims for more than 800,000 vehicles were manipulated, with the specified average mileage not even achievable in testing, much less in real-world conditions. The new scandal affects models carrying the company’s own environmental seal-of-excellence known as BlueMotion, a label reserved for “the most fuel efficient cars of their class,” as the company itself claims. It has now become clear that such claims are a fraudulent lie. And it shows that this scandal may continue to broaden before VW manages to get it under control.

Short version: nothing is happening. This is how the EU ‘runs’.

• EU Asks Members To Investigate After VW Admits New Irregularities (Reuters)

The European Commission has written to all 28 European Union member countries urging them to widen their investigations into potential breaches of vehicle emissions rules after Volkswagen (VOWG_p.DE) admitted it had understated carbon dioxide levels. Europe’s biggest motor manufacturer admitted in September it had rigged U.S. diesel emissions tests to mask the level of emissions of health-harming nitrogen oxides. In a growing scandal, the German company said on Tuesday it had also understated the fuel consumption – and so carbon dioxide emissions – of about 800,000 vehicles. In a letter seen by Reuters, the Commission said it was not aware of any irregularities concerning carbon dioxide values and was seeking the support of EU governments “to find out how and why this could happen”.

It said it had already contacted Germany’s Federal Motor Transport Authority (KBA), which is responsible for approving the conformity of new car types, and raised the issue with other national authorities at a meeting late on Thursday in Brussels. A Commission spokeswoman confirmed the letter, adding it asked national governments “to widen their investigations to establish potential breaches of EU law”. “Public trust is at stake. We need all the facts on the table and rigorous enforcement of existing legislation,” the spokeswoman said. With vehicle testing in the EU overseen by national authorities, the bloc’s executive body, the Commission, is reliant on each country to enforce rules.

This arrangement has come under fire from environmentalists because on-road tests have consistently shown vehicles emitting more pollutants than laboratory tests. Car manufacturers are a powerful lobby group in the EU, as a major source of jobs and exports. In an open letter on Friday, a group of leading investors urged the EU to toughen up testing of vehicle emissions to prevent a repeat of the VW scandal and the resulting hit to its shareholders. VW shares have plunged as much as a third in value since the crisis broke in September.

Do note this by Mary Nichols, head of the California Air Resources Board: “The case is “the biggest direct breach of laws that I have ever uncovered … This is a serious issue, which will certainly lead to very high penalties..”

• VW Says Will Cover Extra CO2 And Fuel Usage Taxes Paid By EU Drivers (Guardian)

Volkswagen has said it will foot the bill for extra taxes incurred by drivers after it admitted understating the carbon dioxide emissions of about 800,000 cars in Europe. In a letter to European Union finance ministers on Friday, seen by Reuters, Matthias Müller, the VW chief executive, asked member states to charge the carmaker rather than motorists for any additional taxes relating to fuel usage or CO2 emissions. The initial emissions scandal, which erupted in September when Volkswagen admitted it had rigged US diesel emissions tests, affecting 11m vehicles globally, deepened this week when VW said it had also understated the carbon dioxide emissions and fuel consumption of 800,000 vehicles in Europe. Analysts say VW, Europe’s biggest carmaker, could face a bill of up to €35bn for fines, lawsuits and vehicle refits.

To help meet some of the anticipated costs, VW has announced a €1bn programme of spending cuts. The head of VW’s works council said the announcement of the cuts had broken strict rules in Germany on consultation with workers and demanded immediate talks with company bosses. “Management is announcing savings measures unilaterally and without any foundation,” Bernd Osterloh said in an emailed statement. [..] Since the emissions revelations, VW has been criticised by lawmakers, regulators, investors and customers frustrated at the time it is taking to get to the bottom of a scandal that has wiped almost a third off the carmaker’s market value. Mary Nichols, the head of the California Air Resources Board, which is investigating VW in the US, told the German magazine WirtschaftsWoche: “Volkswagen is so far not handling the scandal correctly.

“Every additional gram of nitrogen oxide increases the health risks for our citizens. Volkswagen has not acknowledged that in any way or made any effort to really solve the problem.” The case is “the biggest direct breach of laws that I have ever uncovered … This is a serious issue, which will certainly lead to very high penalties,” Nichols added. The scandal has also piled pressure on European regulators, who have long been criticised by environmentalists on the grounds that on-road tests have consistently shown vehicles emitting more pollutants than official laboratory tests. In an open letter, a group of leading investors urged the EU to toughen up vehicle testing. But it faces a battle because carmakers have traditionally had a strong influence on policy in countries such as Germany, Europe’s biggest economy, where they are an important source of jobs and export income.

Now everyone else must jump ship too.

• Goldman Sachs Dumps Stock Pledged By Valeant Chief (FT)

Valeant said on Friday that Goldman Sachs had sold more than $100m-worth of shares in the struggling drugmaker, which had been pledged as collateral against a personal loan from the investment bank to the company’s chief executive. Goldman contacted Michael Pearson, Valeant’s chief executive, earlier this week and gave him 48 hours to pay off a $100m loan that he took out in 2013 after a precipitous decline in the company’s share price triggered a so-called margin call on the debt. After he failed to raise enough cash to pay off the loan, Goldman Sachs on Thursday morning dumped the entire block of just under 1.3m shares, held in Mr Pearson’s name, which were worth roughly $119.4m at the open of trading in New York on Thursday.

The sale of Mr Pearson’s pledged shares contributed to a rout in the company’s stock price on Thursday, during which its market value fell as much as 20%. Roughly 57m shares changed hands during the day, compared with a daily average of 4m over the past 12 months. The embarrassing announcement is the latest setback for Valeant and its high-profile hedge fund backers, who include Bill Ackman, Jeff Ubben and John Paulson. It comes after months of controversy surrounding the drugmaker’s reliance on high prices, aggressive sales techniques and debt-fuelled deal making. Goldman’s decision to terminate the loan to Mr Pearson underscores the impact of the rout in Valeant’s shares on his personal wealth. Mr Pearson owns roughly 9m shares, accounting for Goldman’s sale on Thursday. In August that stake was worth almost $2.4bn; as of Friday morning, the value had plummeted to $720m.

The EU’s criminal folly: “In the questionable strategy of EU bureaucrats, an increase in foreclosures should boost the banks’ assets and in this way should help to reduce the financial demands on the ESM bailout fund.”

• New Countdown For Greece: A Bank Bail-In Is Looming (Minenna)

The debt crisis may no longer be in the spotlight but the financial situation in Greece remains complex. Greek banks continue to survive at the edge of bankruptcy, kept afloat only by Emergency Liquidity Assistance (ELA) from the ECB and by still-enforced capital controls. After the August “agreement”, the Troika has promised the Greek government €25 billion for bank recapitalization, of which €10bn is in a Luxembourg account ready to be wired. The funds will be disbursed only if the government manages, before the 15th of November, to approve a long list of urgent reforms: the infamous list of the “48 points” that embraces tax increases, public spending cuts and the highly controversial pensions reform. It is obviously a tough task for the Tsipras government, even if September’s election victory gave him a solid mandate.

After a parliamentary marathon, it seems that the government has successfully passed some unpopular measures: the increase from 26% to 29% in income tax, the rise from 5% to 13% in the tax on luxury goods and the restoring of the tax on television advertisements. The process was not so smooth with the first steps in reforming pensions and slowdowns are on the horizon. Tsipras is also trying to gain time against the pressure of Brussels to modify the laws that still protect primary homeowners from foreclosure. According to some estimates, there are around 320,000 families in Greece that are not paying down their mortgages and obviously these bad loans are dead weights for the banking system. In the questionable strategy of EU bureaucrats, an increase in foreclosures should boost the banks’ assets and in this way should help to reduce the financial demands on the ESM bailout fund.

Anyway, the Greek government is still living for the day, and the Troika has noticed that only 19 of the mandatory 48 reforms have been approved so far. Brussels is unhappy with this situation and has sent a strong “signal” to the Tsipras government by delaying the last €2 billion tranche of loans. At end-October 2015, €13 billion has already been transferred to Greece; these cash inflows alone have allowed the government to guarantee payments of salaries and pensions and reduced the dangerous social tensions experienced in July. Moreover, part of these funds has been diverted to pay down the ECB and this could allow the QE programme to be extended to Greece as early as November. This would be an unexpected image success for Mr. Tsipras and would give breathing space to the banking system, where up to €15 billion of government bonds eligible for purchase by the ECB are still languishing.

2016 looks to be a watershed year for British care in general.

• UK Care Home Sector In ‘Meltdown’, Threatened By US Vulture Fund (Ind.)

The UK’s largest provider of care homes is preparing to sell scores of properties and slash its budget by millions to fend off an attack from a US vulture fund hoping to cash in on the UK elderly-care crisis. Four Seasons Health Care, which cares for thousands of residents, is facing a £500m-plus credit crunch after government spending cuts and financial engineering by City investors left it struggling to pay lenders. The little-known H/2 Capital Partners has been buying up the group’s debt in the hope that the current owners, Terra Firma, will cede control of the homes after finances were squeezed by local government funding cuts.

Martin Green, the chief executive of Care England, a trade group for elderly-care provision, said the Government needed to step in to stop speculative investors targeting the troubled industry. “If the Government does not fund the sector properly, people will come into it to make money rather than deliver care,” he warned. To stave off the hedge fund assault, Four Seasons is considering plans to make deep cuts to the money it spends refurbishing and developing care homes. [..] Unions are concerned that the funding crisis will force many elderly residents to move into NHS beds and have called on Chancellor George Osborne to deliver ringfenced funding to the social care sector in his spending review later this month.

“The sector is going through a slow-motion collapse and Four Seasons is part of that situation,” GMB national officer Justin Bowden said. “It’s in meltdown and there will be tens of thousands of our mums and dads who will have to be looked after.” The squeeze on funding has put Four Seasons’ owner Terra Firma in a bind as it tries to meet annual costs of about £110m a year. The buyout group, led by well-known dealmaker Guy Hands, bought Four Seasons in 2012 from Royal Bank of Scotland for £825m in a debt-fuelled takeover. Most of the takeover cash was borrowed using two loans sold on to investors – one worth £350m and the other £175m.

The care disaster will spread across the western world. It will get ugly and deadly.

• US Congress Proposes A Chilling Resolution On Social Security (Simon Black)

Officially, the US government is now $18.5 trillion in debt, and Social Security is the biggest financial sinkhole in America. Social Security’s various trust funds currently hold about $2.7 trillion in total assets; yet the government itself estimates the program’s liabilities to exceed $40 trillion. And Social Security’s second biggest trust fund, the Disability Insurance fund, will be fully depleted in a matter of weeks. The trustees who manage these massive funds on behalf of the current and future retirees of America are clearly concerned. In the 2015 report of the Social Security and Medicare Board of Trustees they state very plainly:

“Social Security as a whole as well as Medicare cannot sustain projected long-run program costs…”, and that the government should be “giving the public adequate time to prepare.” Wow. Now, we always hear politicians say that ‘Social Security is going to be just fine’. So this Board of Trustees must be a bunch of wackos. Who are these guys anyhow? The Treasury Secretary of the United States of America, as it turns out. Along with the Secretary of Health and Human Services. The Secretary of Labor. Etc. These are the folks who sign their name to the report saying that Social Security is going bust, and that Congress needs to give people time to prepare. And prepare they should.

The US Government Accountability Office recently released a report showing that tens of millions of Americans haven’t saved a penny for retirement; and roughly half of Baby Boomers have zero retirement savings. This means that there’s an overwhelming number of Americans pinning all of their retirement hopes on Social Security. Bad idea. In a recently proposed resolution, H. Res 488, Congress states point blank that Social Security “was never intended by Congress to be the sole source of retirement income for families.” Apparently they got the message from the Social Security Trustees and they want to start preparing people for the inevitable truth. This is no longer some wild conspiracy theory.

The Treasury Secretary is saying it. Congress is saying it. The numbers are screaming it: Social Security is going to fail. Ultimately this is a just another chapter in the same story– that government cannot be relied on to provide or produce, only to squander and fail. Sure, their intentions may be noble. But this level of serial incompetence can no longer be trusted, nor should we be foolish enough to believe that some new candidate can fix it. If you’re in your fifties and beyond, you’re probably going to be OK and at least get 10-15 years of benefits. If you’re in your 40s and below, you have to be 100% prepared to fend for yourself. Fortunately you have time to recover. Time to build. And time to learn.

The chaos only deepens.

• Germany Imposes Surprise Curbs On Syrian Refugees (Guardian)

Angela Merkel has performed an abrupt U-turn on her open-door policy towards people fleeing Syria’s civil war, with Berlin announcing that the hundreds of thousands of Syrians entering Germany would not be granted asylum or refugee status. Syrians would still be allowed to enter Germany, but only for one year and with “subsidiary protection” which limits their rights as refugees. Family members would be barred from joining them. Germany, along with Sweden and Austria, has been the most open to taking in newcomers over the last six months of the growing refugee crisis, with the numbers entering Germany dwarfing those arriving anywhere else.

However, the interior minister, Thomas de Maiziere, announced that Berlin was starting to fall into line with governments elsewhere in the European Union, who were either erecting barriers to the newcomers or acting as transit countries and limiting their own intake of refugees. “In this situation other countries are only guaranteeing a limited stay,” De Maiziere said. “We’ll now do the same with Syrians in the future. We’re telling them ‘you will get protection, but only so-called subsidiary protection that is limited to a period and without any family unification.’” The major policy shift followed a crisis meeting of Merkel’s cabinet and coalition partners on Thursday.

The chancellor won global plaudits in August when she suspended EU immigration rules to declare that any Syrians entering Germany would gain refugee status, though this stirred consternation among EU partners who were not forewarned of the move. Thursday’s meeting decided against setting up “transit zones” for the processing of refugees on Germany’s borders with Austria, but agreed on prompt deportation of people whose asylum claims had failed.

Until now Syrians, Iraqis and Eritreans entering Germany have been virtually guaranteed full refugee status, meaning the right to stay for at least three years, entitlement for family members to join them, and generous welfare benefits. Almost 40,000 Syrians were granted refugee status in Germany in August, according to the Berlin office responsible for the programme, with only 53 being given “subsidiary” status. That now appears to have ended abruptly. An interior ministry spokesman told the Frankfurter Allgemeine Zeitung: “The Federal Office for Migration and Refugees is instructed henceforth to grant Syrian civil war refugees only subsidiary protection.”

What happens when you fail to prepare.

• Germany Receives Nearly Half Of All Syrian Asylum Applicants (Guardian)

Germany has received nearly one in two of all asylum applications made by Syrians in EU member states this year. New figures released by the ministry of the interior on Thursday put the total number of asylum applications filed in Germany so far this year at 362,153, up 130% on January to October 2014. Nearly 104,000 of these applications were made by Syrians. This corresponds to about 47.5% of all requests for asylum submitted by Syrians in EU member states this year. Together with Germany, the countries that have received the most asylum applications from Syrians relative to their population sizes are Austria, Sweden and Hungary, with 1.3, 1.5, 2.7 and 4.7 applications per 1,000 people respectively. Europe’s next two biggest economies, France and Britain, on the other hand, have received only 0.03 and 0.02 applications from Syrians per 1,000 people respectively, according to Eurostat data.

Germany received 54,877 asylum applications in October alone, an increase of nearly 160% compared with the same month last year, according to the same figures. But the figure for formal asylum applications doesn’t reveal the full scale of the number of people Germany is absorbing. Filing the required paperwork takes time. The German interior ministry notes that the country registered 181,166 asylum seeker arrivals in October alone. Of these, 88,640 were from Syria, 31,051 from Afghanistan and 21,875 from Iraq. Between January and October, Germany registered the arrival of 758,473 asylum seekers, about a third of which (243,721) were from Syria. The country expects to receive more than a million asylum seekers this year. So far this year, 81,547 people have been granted refugee status in Germany, which represents just under 40% of all asylum decisions taken from January to October 2015.

Sweden’s been a light in a very opaque darkness, but…

• Sweden Feels The Refugee Strain (Bloomberg)

Sweden, which considers itself a humanitarian superpower, has long welcomed refugees, whether they be Jews escaping the Holocaust or victims of civil wars and natural disasters. Some 16% of its population is foreign-born, well above the U.S. figure of 13%. Since the 1990s the Scandinavian nation of 9.6 million has absorbed hundreds of thousands of migrants from the former Yugoslavia, the Middle East, and Africa. Still, Swedes have never experienced anything like the current influx. Some 360,000 refugees—mainly from Afghanistan, Iraq, and Syria—are expected to enter the country in 2015 and 2016, on top of the 75,000 who sought asylum last year. It’s as if North Carolina, which has about the same population as Sweden, sprouted a new city the size of Raleigh in three years.

In a sign that its hospitality may be wearing thin, the government announced on Oct. 23 that by next year it will end a policy of automatically granting permanent residency to most refugees. In the future, adults arriving without children will initially get only a temporary residence permit. The Swedish Migration Agency says that meeting refugees’ basic needs could cost the national government 60 billion kronor ($7 billion) in 2016. Local governments and private organizations will spend billions more. If the flow doesn’t subside, “in the long term our system will collapse,” said Foreign Affairs Minister Margot Wallström in an Oct. 30 interview with the daily Dagens Nyheter.

And Germany says ‘Stay in Austria’, and we’re off to the races…

• Sweden Tells Refugees ‘Stay in Germany’ as Ikea Runs Out of Beds (Bloomberg)

Europe’s refugee crisis is having such a major impact in Sweden that even Ikea is running out of beds. The Swedish furniture giant says its shops in Sweden and Germany are running short on mattresses and beds amid increased demand due to an unprecedented inflow of asylum seekers in the two countries. In Sweden, which along with Germany has been the most welcoming, the Migration agency had to let about 50 refugees sleep on the floor of its head office on Thursday night as it tries to find accommodation for the latest arrivals. “There are some shortages of bunk beds, mattresses and duvets” in some stores in Germany and Sweden, Josefin Thorell, an Ikea spokeswoman, said in an e-mailed response when asked whether the company had been affected by the biggest influx of migrants since World War II.

“If the situation persists we expect that it will be difficult to keep up and maintain sufficient supply,” Thorell said. Ikea has been supplying local authorities handling the refugee crisis. So far, 120,000 asylum seekers have arrived in Sweden this year and as many as 190,000 are expected to head to the country of 10 million people. Although Finance Minister Magdalena Andersson told reporters on Friday that the pressure on public finances “is not acute,” the Swedish government says it is no longer able to offer housing to new arrivals. “Those who come here may be met by the message that we can’t arrange housing for them,” Migration Minister Morgan Johansson told reporters. “Either you’ll have to arrange it yourself, or you have to go back to Germany or Denmark again.”

Meanwhile, ….

• Greek Coast Guard: Five More Migrants Found Dead (Kath.)

Greek authorities say the bodies of five more migrants have been found in the eastern Aegean Sea, which hundreds of thousands have crossed in frail boats this year seeking a better life in Europe. The coast guard said Friday that three men and a woman were found dead over the past two days in the sea off Lesvos. The eastern island is where most of the migrants head from the nearby Turkish coast, paying large sums to smugglers for a berth on overcrowded, unseaworthy vessels. The body of another man was found Thursday off the islet of Agathonissi. Well over half a million people have reached the Greek islands so far this year – a record number of arrivals – and the journey has proved fatal for hundreds.

Debt Rattle October 3 2015

Oct 032015

October 3, 2015 Posted by Raúl Ilargi Meijer at 9:09 am Finance Tagged with: buybacks, China, credit, debt, emissions, investors, jobs, migrants, refugees, VW Comments Off

DPC Looking south on Fifth Avenue at East 56th Street, NYC 1905

• US Job Growth Disappoints Even More than Usual (NY Times)

• US Payrolls Disaster: Only 142K Jobs Added In September With Zero Wage Growth (ZH)

• Fed: The 94.6 Million Americans Out Of The Labor Force ‘Don’t Want A Job’ (ZH)

• Companies Are Cutting Jobs And Buying Back Stock At The Same Time (MarketWatch)

• Credit Investors Bolt Party as Economy Fears Trump Low Rates (Bloomberg)

• Market Signals Mean Investors Must Start To Question Assumptions (John Authers)

• Jeff Gundlach: Expect ‘Another Wave Down’ In Markets (Reuters)

• The Reality Behind The Numbers In China’s Boom-Bust Economy (Mises Inst.)

• China Imposes New Capital Controls (Chang)

• VW Scandal Deepens As France And Italy Launch Deception Inquiries (Guardian)

• Volkswagen: Full Chronology of The Scene of the Crime (Handelsblatt)

• VW Tsunami: Falsified Emissions Push Company to Limits (Spiegel)

• VW Emissions Cheating Scandal Heading To US Congress (CNBC)

• VW Financial Services Arm A Risk Investors May Be Overlooking (CNBC)

• Canada Opposition Warns TPP Deal Not Binding Ahead Of Imminent Election (G&M)

• Australia Is “Going Down Under”: “The Bubble Is About To Burst”, RBS Warns (ZH)

• Half of World’s Coal Output Is Unprofitable (Bloomberg)

• From Here On Out, This Is Not A Video Game – This Is Real (Martin Armstrong)

• Channel Tunnel Closed As Migrants Occupy Complex (AFP)

• UN Refugee Agency: Over 1.4 Million To Cross Mediterranean To Europe (Reuters)

Go figure: 94.6 million ‘out of the labor force’, but NY Times states: “..weak demand for labor accounts for an estimated 2 million working-age men and women who currently do not have jobs or are not looking for jobs.”

• US Job Growth Disappoints Even More than Usual (NY Times)

The jobs report for September was a real letdown, and that is saying a lot, because what has passed for strong growth in the past year – 243,000 jobs a month on average before the latest data pulled the average down – has always been disappointing. It was a big improvement from job growth earlier in the recovery, but it was still too slow and too uneven to restore full employment and pull up wages. Then, last month, the economy added a scant 142,000 jobs and monthly tallies for July and August were revised down by 59,000 jobs. The labor force shrank – and not only because of retirements. Rather, weak demand for labor accounts for an estimated 2 million working-age men and women who currently do not have jobs or are not looking for jobs.

In addition, the share of 25 to 34-year-olds with jobs, a crucial demographic for home buying, has flattened recently, having never recovered its pre-recession level. There was, yet again, no meaningful wage growth in September. A slower pace of overall job growth plus flat wages is an especially bad sign for consumer spending. A cloudy outlook for spending implies a cloudy outlook for the economy. The best response to a report like September’s is to withhold judgment until more data comes in. It is hard, however, to be optimistic. In September, roughly as many industries gained employment as lost employment. In a healthy economy, employment gains outweigh employment losses across industries.

In the manufacturing sector, employment declines have been greater than employment gains for the past two months. The fear is of a continued slide. The Federal Reserve has rightly held off on interest rate increases in order to give the job market more time to recover. But robust recovery has been hindered, in large part, by the failure of Congress to use fiscal support to amplify the Fed’s efforts. If economic growth were to slow in what is still a near-zero interest rate environment, the Fed would not be able to jolt the economy with interest rate cuts. Janet Yellen, the Fed’s chairwoman, alluded to that possibility in a speech earlier this year. If it came to pass, Congress would be the economy’s best hope for stimulus policy. Would lawmakers step up? Like I said, it’s hard to be optimistic.

“..the household survey was an unmitigated disaster, with 236,000 jobs lost in September..”

• US Payroll Disaster: Only 142K Jobs Added In September With Zero Wage Growth (ZH)

And so the “most important payrolls number” at least until the October FOMC meeting when the Fed will once again do nothing because suddenly the US is staring recession in the face, is in the history books, and as previewed earlier today, at 142K it was a total disaster, 60K below the consensus and below the lowest estimate. Just as bad, the August print was also revised far lower from 173K to 136K. And while it is less followed, the household survey was an unmitigated disaster, with 236,000 jobs lost in September. Putting it into perspective, in 2015 job growth has averaged 198,000 per month, compared with an average monthly gain of 260,000 in 2014. The recession is almost here.

As noted above, the headline jobs print was below the lowest Wall Street estimate. In other words 96 out of 96 economisseds did what they do best. The unemployment rate came in at 5.1% as expected but everyone will be focusing on the disaster headline print. And worst of all, average hourly wages stayed flat at 0.0%, also below the expected 0.2%. Actually, if one zooms in, the change was not 0.0%, it was negative, while weekly earnings actually declined from $868.46 to $865.61. Finally, not only were workers paid less, they worked less, as the average hourly weekweek declined from 34.6 hours to 34.5, suggesting an imminent collapse in economic output.

“..there are nearly 100 million working-age Americans who could be in the labor force, but are not, “mostly” because they don’t want a job.”

• Fed: The 94.6 Million Americans Out Of The Labor Force ‘Don’t Want A Job’ (ZH)

In a note seeking to “explain” why the US labor participation rate just crashed to a nearly 40 year low earlier today as another half a million Americans decided to exit the labor force bringing the total to 94.6 million people… this is what the Atlanta Fed has to say about the most dramatic aberration to the US labor force in history: “Generally speaking, people in the 25–54 age group are the most likely to participate in the labor market. These so-called prime-age individuals are less likely to be making retirement decisions than older individuals and less likely to be enrolled in schooling or training than younger individuals.”

This is actually spot on; it is also the only thing the Atlanta Fed does get right in its entire taxpayer-funded “analysis.” However, as the chart below shows, when it comes to participation rates within the age cohort, while the 25-54 group should be stable and/or rising to indicate economic strength while the 55-69 participation rate dropping due to so-called accelerated retirement of baby booners, we see precisely the opposite. The Fed, to its credit, admits this: “participation among the prime-age group declined considerably between 2008 and 2013.” And this is where the wheels fall off the Atlanta Fed narrative. Because the regional Fed’s very next sentence shows why the world is doomed when you task economists to centrally-plan it:

The decrease in labor force participation among prime-age individuals has been driven mostly by the share who say they currently don’t want a job. As of December 2014, prime-age labor force participation was 2.4 percentage points below its prerecession average. Of that, 0.5 percentage point is accounted for by a higher share who indicate they currently want a job; 2 percentage points can be attributed to a higher share who say they currently don’t want a job.

And there you have it: there are nearly 100 million working-age Americans who could be in the labor force, but are not “mostly” because they don’t want a job.

How to destroy your economy in 2 easy steps.

• Companies Are Cutting Jobs And Buying Back Stock At The Same Time (MarketWatch)

How would you feel if the company that just laid you off said it was spending millions of dollars, or even billions, to buy back its stock? At least you wouldn’t feel lonely. U.S. companies announced 205,759 job cuts during the third quarter, the most since the third quarter of 2009, just after the Great Recession, according to data provided by outplacement company Challenger, Gray & Christmas In September, the number of announced job cuts was nearly double what it was at the same time last year. On Friday, the Labor Department released a stinker of a September jobs report. At the same time, share repurchases announced by U.S. companies during the third quarter remains around the highest levels in at least the last decade, according to data provider Dealogic.

In September, companies authorized buybacks totaling $243.4 billion, more than seven times the amount announced in the same month a year ago, Dealogic said. One might think these corporate actions are mutually exclusive, but as the chart above shows, many companies are doing both. In fact, some companies have even announced job cuts and share buybacks in the same news release. Hewlett-Packard made the biggest job-cut announcement this year, according to Challenger, on Sept. 15, when it said it was laying off up to 30,000 people. In the same statement, it indicated it could spend $700 million on share repurchases in fiscal 2016. Late Thursday, Bebe Stores said in a statement that it will lay off over 50 employees, or nearly 2% of its workforce, to save about $4.8 million a year. In the next paragraph, Bebe said it authorized a $5 million share repurchase program, which at current prices represents nearly 6% of the shares outstanding.

The US is drowning in debt. Anything else is just fluff.

• Credit Investors Bolt Party as Economy Fears Trump Low Rates (Bloomberg)

Debt investors are a nervous lot these days, and new signs that global turmoil is weighing on the U.S. economic outlook are only adding to their angst. Measures of corporate credit risk spiked immediately after a Labor Department report showed that payrolls rose less than projected last month, wages stagnated and the jobless rate was unchanged. Investors are now demanding more than they have in three years to own junk bonds, which are on track to cap off their worst week this year. Frustration is growing that even after seven years of easy-money policies, economic growth remains sluggish. While the Federal Reserve is signaling that it’s in no hurry to normalize interest rates, investors are increasingly worried about what the data will mean for earnings at companies that have sold $9.3 trillion of corporate bonds since the start of 2009.

“At some point the financial markets say, ‘Enough about monetary stimulus, we need real growth,’” said Jack McIntyre at Brandywine Global Investment. “Bad things happen in a low-growth environment. There’s more risk, more potholes.” This was a tough week for the bond market. Glencore kicked things off with investor concerns that the mining and commodities trading company would have trouble harnessing its $30 billion in debt, which sent junk-bond yields skyrocketing. Weakness also spread to investment-grade credit as Hewlett-Packard had to increase the amount it was willing to pay investors to buy $14.6 billion of notes that will fund its split into two companies.

On Friday, the credit-default swaps benchmark tied to the debt of 125 investment-grade companies jumped 3.6 basis points to 98 basis points, the highest level since June 2013. The index pared the jump later in the day. Investors’ diminishing appetite for plowing money into corporate bonds has put the $6.5 trillion market for U.S. company borrowings on track to post losses this year for the first time since the 2008 financial crisis ravaged markets. “The risk environment for credit appears to have deteriorated substantially in the past few weeks,” Barclays strategists led by Jeffrey Meli and Brad Rogoff wrote in a report Friday. “There have been several examples of any negative news leading to an outsized repricing lower, particularly in high yield.”

Authers has been consistently looking at things from the wrong side. And even as he’s slowly waking up, he still does.

• Market Signals Mean Investors Must Start To Question Assumptions (John Authers)

Markets trade on a number of unspoken assumptions. For those who want to understand why markets are now signalling concern, let me list the assumptions that have recently been called into question. First, and most important, was the belief that low interest rates had driven stock markets up (particularly in the US where the central bank had been most aggressive in pumping out cheap money), and that cheap rates would keep share prices up. Last month, after much debate, the Federal Reserve made the marginal decision not to raise rates — and it triggered a sharp sell-off in world stock markets. The “good news” of cheap money was swamped by the “bad news” of the reasons for that decision. Friday’s publication of September’s employment data for the US confirms the wisdom of the Fed’s decision, and also the market’s response.

Payrolls grew by less than 150,000 for two consecutive months — the first time this has happened since 2012. Employment is still growing, and employment data are notoriously noisy. But that rate of growth is now unambiguously slowing, while long-term unemployment remains damagingly high. The instant response, judging by the Fed Funds futures market, was to put the market’s estimate of when the Fed will indeed start raising rates all the way back to March of next year. And the instant response of the stock market to the good news that money would stay cheaper for longer was to sell off, while investors piled into bonds, taking the yield on 10-year Treasury bonds below 2%.

We are now at a point where bad news on growth simply reveals that monetary policy has become impotent in the minds of investors. Economic growth is a concern, and enough of a concern to swamp any relief at countermanding easy monetary policy. Why? Because of the overturning of a second assumption — that China’s remarkable economic growth story can continue uninterrupted, under capable guidance from its political leaders. China continues to grow, but the sharp slowing of its pace, and the perceived miscues of its leaders over the summer, while handling its stock market and a slight devaluation in its currency, have shaken confidence.

There are good reasons for concern over China’s economy, and the Asian economies that surround it. As the latest supply manager surveys demonstrate, export orders are growing at their slowest since the 2009 recession, while inventories are high. The fear is that a slowing Asia will export deflation to the west — a problem that manifests itself most directly in falling prices for metals, of which China is the world’s biggest consumer. That leads to a third assumption: corporate America can be the “little engine that can”, and keep churning out rising profits. The consistent recovery of US companies’ profits since their sudden collapse during the credit crisis of 2008 and 2009 has been a wonder of the age. Cheap money, enabling buybacks of stock, helped. But that growth has also now come to a halt.

“..Markets need buying to go up and they need volume to go up.They can fall just on gravity.”

• Jeff Gundlach: Expect ‘Another Wave Down’ In Markets (Reuters)

DoubleLine Capital co-founder Jeffrey Gundlach, widely followed for his investment calls, warned after the weak jobs number on Friday that the U.S. equity market as well as other risk markets including high-yield “junk” bonds face another round of selling pressure. “The reason the markets aren’t going lower is people are holding and hoping,” Gundlach said in a telephone interview with Reuters. “The market bottoms out when people are selling and sold out — not when they are holding and hoping. I don’t think you’ve seen real selling in risk assets broadly. Markets need buying to go up and they need volume to go up.They can fall just on gravity.”

Investors piled into government bonds on Friday, sending the 10-year Treasury yield below 2%, after the Labor Department said employers hired 142,000 workers last month, far below the 203,000 forecasters had expected, and August figures were revised sharply lower to show only 136,000 jobs added. Gundlach said junk bonds are vulnerable: “I’ll think about buying when it stops going down every single day.” “People are acting like everything is great. Junk bonds are at a four-year low. Emerging markets are at a six-year low and commodities are at a multi-year low – same level as in 1995… GDP is not growing at a nominal basis.” Gundlach, whose Los Angeles-based DoubleLine was overseeing $81 billion in assets under management as of the end of the third quarter, said: “Clearly what’s happening is people are waking up to the idea that global growth is not what they thought it was.”

“What we’re experiencing in the Chinese markets are the death throes of an economy that capital markets have realized is simply not productive enough to service that kind of debt.”

• The Reality Behind The Numbers In China’s Boom-Bust Economy (Mises Inst.)

Last year, the world was stunned by an IMF report which found the Chinese economy larger and more productive than that of the United States, both in terms of raw GDP and purchasing power parity (PPP). The Chinese people created more goods and had more purchasing power with which to obtain them – a classic sign of prosperity. At the same time, the Shanghai Stock Exchange more than doubled in value since October of 2014. This explosion in growth was accompanied by a post-recession construction boom that rivals anything the world has ever seen. In fact, in the three years from 2011 – 2013, the Chinese economy consumed more cement than the US had in the entire 20th century. Across the political spectrum, the narrative for the last fifteen years has been that of a rising Chinese hyperpower to rival American economic and cultural influence around the globe.

China’s state-led “red capitalism” was a model to be admired and even emulated. Yet, here we sit in 2015 watching the Chinese stock market fall apart despite the Chinese central bank’s desperate efforts to create liquidity through government-backed loans and bonds. Since mid-June, Chinese equities have fallen by more than 30 percent despite massive state purchases of small and mid-sized company shares by China’s Security Finance Corporation. But this series of events should have surprised nobody. China’s colossal stock market boom was not the result of any increase in the real value or productivity of the underlying assets. Rather, the boom was fueled primarily by a cascade of debt pouring out of the Chinese central bank.

Like the soaring Chinese stock exchange, the unprecedented construction boom was financed largely by artificially cheap credit offered by the Chinese central bank. New apartment buildings, roads, suburbs, irrigation and sewage systems, parks, and commercial centers were built not by private creditors and entrepreneurs marshaling limited resources in order to satisfy consumer demands. They were built by a cozy network of central bank officials, politicians, and well-connected private corporations.

Nearly seventy million luxury apartments remain empty. These projects created an epidemic of “ghost cities” in which cities built for millions are inhabited by a few thousand. At the turn of the century, the Chinese economy had outstanding debt of $1 trillion. Only fifteen years and several ghost cities later that debt has ballooned to an unbelievable $25 trillion. What we’re experiencing in the Chinese markets are the death throes of an economy that capital markets have realized is simply not productive enough to service that kind of debt.

“The only way Beijing can support its currency is to sell foreign exchange, in most cases the dollar. Reporting by the FT at the end of August suggested that China was selling dollars at the rate of about $20 billion a day for this purpose..”

• China Imposes New Capital Controls (Chang)

The State Administration of Foreign Exchange, China’s foreign exchange regulator, has imposed annual limitations on cash withdrawals outside China on China UnionPay bank cards, the Wall Street Journal learned on Tuesday. The limitations are reportedly contained in a circular SAFE, as the regulator is known, sent to banks. Cardholders, under the new rules, may withdraw a maximum 50,000 yuan ($7,854) in the last three months of this year and a maximum 100,000 yuan next year. Because UnionPay processes virtually all card transactions in China, the new limits apply to all Chinese credit and bank cards. Beijing already imposes a 10,000-yuan daily limit on withdrawals.

And why should the rest of the world care about how much money a holder of a Chinese credit card can get from an ATM in, say, New York? The new rules could be the first in a series of measures leading to draconian prohibitions of transfers of money from China. Draconian prohibitions, in turn, could spark a global panic. Capital has been flowing out of China at a fast pace for more than a year, but the rate has been accelerating recently. In August, for instance, the country’s official foreign exchange reserves dropped by a stunning $93.9 billion according to SAFE, the biggest fall on record. Some analysts, however, had expected Beijing’s cash hoard to plunge by $150 billion, and it’s possible SAFE has underreported the outflow to avoid creating alarm.

Yet it’s hard for Chinese leaders to mask the situation. Wind Information, China’s leading financial data provider, says money is coming out of the country at the rate of $135 billion a month, net of inflow. That assessment appears more or less correct. Capital outflow in August, according to Bloomberg, was a record $141.7 billion, which topped July’s record of $124.6 billion. Goldman Sachs puts the August outflow at $178 billion. The global financial community has been focusing on the wrong crisis in China. Beijing’s efforts to prevent the collapse of equity values by massive purchases of stocks have received wide publicity since early July, but these purchases do not pose an immediate challenge to China’s technocrats.

They are, after all, using their own currency to acquire shares, and they can print as much of it as they like, especially because the country is in a general deflationary era. What is critical however, is Beijing’s defense of the renminbi. The People’s Bank of China, the central bank, began devaluing the currency on August 11th in a move that continues to puzzle observers. In any event, the devaluation triggered a run. Chinese officials, therefore, had to mount a heroic defense of the renminbi. The only way Beijing can support its currency is to sell foreign exchange, in most cases the dollar. Reporting by the Financial Times at the end of August suggested that China was selling dollars at the rate of about $20 billion a day for this purpose. At that “burn” rate, Beijing could use up all its foreign exchange reserves in a year.

“BMW, Chrysler, General Motors, Land Rover and Mercedes-Benz are under scrutiny from the US regulator that exposed Volkswagen’s manipulation of emissions tests.”

• VW Scandal Deepens As France And Italy Launch Deception Inquiries (Guardian)

The Volkswagen emissions-testing scandal is deepening, with authorities in France and Italy launching investigations into the embattled German carmaker. Italy’s competition regulator is to investigate whether VW engaged in “improper commercial practices” by promoting its vehicles as meeting emissions standards which it failed to reach without a “defeat device”. The inquiry involves Volkswagen, Audi, Seat and Skoda diesel vehicles sold between 2009 and 2015. VW has suspended the sale of affected vehicles in Italy and also said it will recall more than 650,000 vehicles in the country. In France, an official from the prosecutor’s office told Reuters that an inquiry had been opened, and the French magazine L’Express said this had been launched at the instigation of Pierre Serne, vice-president of the region Île-de-France responsible for transport.

It also emerged on Friday that other car manufacturers – BMW, Chrysler, General Motors, Land Rover and Mercedes-Benz – are under scrutiny from the US regulator that exposed Volkswagen’s manipulation of emissions tests. The EPA has broadened its investigation to include at least 28 diesel-powered car models made by those companies, according to the Financial Times. VW has admitted to the US regulator that it fitted up to 11m vehicles with software that manipulates the tests. Its chief executive, Martin Winterkorn, has stepped down and is facing a criminal investigation in Germany, along with other, unnamed, employees of the carmaker.

The EPA will initially test one used vehicle of each model and then widen the enquiry if it finds anything suspicious, a senior agency official close to the investigation told the FT. The investigation will include most of the diesel vehicles on US roads, such as BMW’s X3, Chrysler’s Grand Cherokee, GM’s Chevrolet Colorado, the Range Rover TDV6 and the Mercedes-Benz E250 BlueTec. Diesel engines make up a tiny proportion of the overall car market in the US, but are far more common in Europe.

German journalists are digging deeper, and it will be that much harder to bury the scandal.

• Volkswagen: Full Chronology of The Scene of the Crime (Handelsblatt)

Volkswagen, the world’s largest automaker, has been brought to its knees by the emissions cheating scandal. The company’s share price has been virtually halved, its reputation is in tatters, customers are furious and employees are distraught. Handelsblatt pieces together the events that led up to the scandal, based on the facts as they are currently known. The following chronology is based on the work of six reporters and correspondents, who analyzed corporate documents and spoke to many of the people involved.

Chapter 1: The Big Plan is Hatched in Wolfsburg

February 2005 – Wolfgang Bernhard becomes head of the group’s core VW brand and, with the help of CEO Bernd Pischetsrieder, begins developing a new engine that will work with “common rail injection.” The new engine is to be used above all in the United States, where VW wants to start growing again. The group hopes that diesel engines, which are more economical and accelerate quickly, will help it gain ground against U.S. and Japanese rivals. There is one problem, however: The U.S. authorities have the strictest environmental standards.

May 2005 – Mr. Bernhard entrusts the new project to Rudolf Krebs, a developer at VW’s Audi brand. It quickly becomes apparent that it will be impossible to comply with U.S. emissions standards using current technology. Their solution is “adblue,” a technology used by German carmaker Daimler. Developers at VW and Audi are strongly opposed to the use of “adblue” in the planned engine, which later will come to be known as the EA 189, the engine containing the emissions cheating device. Mr. Bernhard is undeterred and presses on with plans for the new engine to incorporate “adblue” and common rail injection.

Fall 2006 – The first prototype is tested in South Africa. Martin Winterkorn, the head of Audi, and Ferdinand Piëch, the chairman of the VW group’s supervisory board and a major shareholder, are reported to have been present, but are not said to have been impressed.

November 11, 2006 – It emerges that Daimler and the VW group will offer diesel cars in the United States under the joint label “Bluetec.”

Chapter 2: The Plan Takes Shape in Wolfsburg

January 7, 2007 – VW subsidiary Audi launches its diesel offensive in the United States at the Detroit Motor Show. It is the first German manufacturer to do so. Wolfgang Bernhard does not attend the show, which surprises journalists. It soon emerges that he is to leave the company at the end of January, after less than two years in his post.

Finally we find out who’s been sacked. But that doesn’t mean the right people have been.

• VW Tsunami: Falsified Emissions Push Company to Limits (Spiegel)

Since Sept. 20, when then-CEO Martin Winterkorn admitted that VW had cheated for years on emissions tests with the help of illegal software, Europe’s largest automobile company has been in crisis mode. Company managers don’t know what tasks to handle first. “It’s like we have been hit by a tsunami,” says one VW manager. Company attorneys have been overwhelmed by inquiries from national authorities on both sides of the Atlantic and by lawyers who have been notifying the company with threats of lawsuits. Beyond that, financial experts have to develop plans in case the company’s ratings fall, which would increase borrowing costs. And sales managers have to come up with promotions to help dealerships sell cars. Diesel models are currently extremely difficult to move off the lot without significant rebates.

And then there is the company investigation that hopes to quickly discover how the scandal could have happened in the first place and who was responsible. Because development of the diesel engine in question began back in 2005, documents, records and emails from the last 10 years have to be examined. But those involved in the investigation have also received clues from the press – for example, the fact that Bosch, a VW supplier, warned Volkswagen early on against using the emissions software in question. But the VW investigation team was unable to find a message to that effect in company records. They contacted Bosch with a request to please send a copy to company headquarters in Wolfsburg.

Four managers who were responsible for the development of engines or vehicles have thus far been suspended. Their experiences were similar to that of Audi board member Ulrich Hackenberg, a long-time confidant of Winterkorn’s and, up until just a few days ago, one of the most powerful men at VW. He received news of his immediate suspension from the personnel department and was asked to turn in his company phone and leave his office. He has also been told not to set foot on company premises. Wolfgang Hatz and Heinz-Jakob Neusser, the heads of R&D for Volkswagen and Porsche respectively, suffered similar fates. In the case of Neusser, there is probable cause: A company employee allegedly told him back in 2011 about the use of the forbidden emissions software.

The moves are vital, as the company seeks to find out what went wrong and begins what promises to be a long process of restoring its reputation. Some of the suspended managers, to be sure, are likely to be reinstated once it is proven that they had nothing to do with the implementation of the software in question. But for the moment, the development of new models at Volkswagen and its affiliates has come to a screeching halt. The old bosses are gone, new ones have yet to be named and projects cannot go forward. That, though, is a small price to pay in comparison to what likely lies ahead. New VW CEO Müller, who was head of Porsche prior to his promotion, has demanded an “unsparing and vigorous investigation.” But with the company’s very existence at risk, even that may not be enough.

How long is this going to take?

• VW Emissions Cheating Scandal Heading To US Congress (CNBC)

Two weeks after revealing that Volkswagen had cheated on diesel emissions tests, officials from the EPA still have not formally ordered a recall of 482,000 VW products, but that step is “likely” to take place, according to an EPA spokesperson. Sources inside Volkswagen, meanwhile, told TheDetroitBureau.com that the automaker is now working with the federal agency to come up with an acceptable fix for diesel models that can produce as much as 40 times the allowed level of pollutants such as smog-causing NOx. VW has already said it is developing a retrofit for a total of 11 million diesel vehicles sold worldwide that contained a secret “defeat device” designed to reduce emissions levels during testing.

VW’s problems have continued to escalate in recent days, and even as prosecutors in both the U.S. and Germany look into the scandal, the automaker’s top U.S. executive has been summoned to Capitol Hill, where he will testify before a congressional oversight panel on Oct. 8. “The American people want to know why these devices were in place, how the decision was made to install them, and how they went undetected for so long. We will get them those answers,” said Rep. Tim Murphy, the Pennsylvania Republican who serves as chairman of the Energy and Commerce Subcommittee on Oversight and Investigations. The hearing will come less than a month after the EPA announced that Volkswagen had secretly added software code to its digital engine controllers designed to rein in emissions during testing.

But in the real world, the nearly half-million diesel vehicles sold in the U.S. over the last seven years were allowed to produce significantly higher levels of pollution than allowed by federal standards. The scandal threatens to consumer the automaker, with potential fines of more than $18 billion from the EPA alone. VW could face additional penalties resulting from the Justice Department investigation, as well as possible criminal sanctions. And the maker has been hit with a number of class-action lawsuits alleging, among other things, that it defrauded customers. September numbers released by VW on Thursday show that the maker did gain about 1% in sales compared to the same month a year ago. But the overall industry saw a 16% jump in volume for September. And since the scandal only hit mid-month, many analysts believe VW could be hit even harder in October.

When -cheating- carmakers get into banking. As if GM’s experiences haven’t been bad enough. Oh wait, GM’s still propping up US cars with cheap loans.

• VW Financial Services Arm A Risk Investors May Be Overlooking (CNBC)

Volkswagen may be an even bigger risk for investors than previously thought, as a key part of its business – aside from making cars – is threatened by the diesel emissions scandal. The company’s financial services business, which gives consumers loans to buy its cars and accounts for close to half of its balance sheet, could be the next source for alarm, according to analysts at Credit Suisse. The previously successful business – which currently has more than €100 billion of outstanding loans to customers – may even need fresh capital, the analysts argue. “We increasingly see risk in VW’s Financial Services business which supported industrial growth in the past.

Higher refinancing costs and risk provisioning makes it difficult for the financial services business to fund itself going forward; thus a capital injection would likely be required unless growth is reduced materially,” Credit Suisse wrote in a research note Friday morning. In other words, the woes of the manufacturing arm of the business are likely to affect the financial services’ ability to borrow to fund its operations. VW’s borrowing costs, measured by its bond yields, are already up by 200 basis points since the company admitted lying about diesel emissions in mid-September. If it is more difficult to get a loan to buy a Volkswagen as a result, the number of consumers wanting to buy its cars may dwindle even further.

But NDP is not high in the polls. On the brighter side, Harper’s not winning either. The liberals were a mess, but Stephen has been a calamity.

• Canada Opposition Warns TPP Deal Not Binding Ahead Of Imminent Election (G&M)

NDP Leader Thomas Mulcair is serving notice that a New Democratic Party government would not consider itself bound by the terms of a major Pacific Rim trade deal which the ruling Conservatives are negotiating on behalf of Canada in Atlanta. The NDP’s hardening of position on the Trans-Pacific Partnership talks comes as the deal appears likely. Discussions in Atlanta have gone into overtime as countries clear obstacles such as how much foreign content should be allowed in Japanese-made cars and Asian auto parts entering North America. Sources said Prime Minister Stephen Harper is being regularly briefed on developments as talks between 12 countries from Chile to Japan enter what is expected to be their final phase. Mr. Mulcair said Friday, however, that he feels the Conservative government has no mandate to agree to the big changes that a TPP deal would bring about.

His bombshell declaration on Friday promises to make the massive trade agreement a bigger factor in Canada’s 42nd federal election, which is 2 1/2 weeks away. It comes as polls suggest the NDP has dropped to third place in the national race. The new marker laid down by the NDP on a potential TPP deal sets it apart from the Conservatives, who favour a deal, and the Liberals, who have focused most of their criticism on the manner in which the Tories have negotiated the agreement rather than its substance. The NDP is trying to consolidate the anti-TPP vote with this move. Mr. Mulcair laid out his reasons in a letter to International Trade Minister Ed Fast, the Conservative government’s point man on the TPP talks, listing a slew of reasons why he’s distancing himself from the agreement, including the expected pain it will bring to Canadian dairy farmers and smaller auto parts makers.

“Your government forfeited a mandate to conclude negotiations on a major international trade agreement the day the election was called,” he writes. The letter also throws into question what would happen should the Conservatives lose power in the Oct. 19 election. “As you participate in Trans-Pacific Partnership negotiations this week in Atlanta, I wish to advise you that an NDP government will not consider itself bound to any agreement signed by your Conservative government during this federal election,” Mr. Mulcair says. He says a caretaker government like the one now running Ottawa during an election campaign is supposed to step carefully and ensure Canada’s interests are “vigorously defended” in Atlanta.

Well put: “Going down under”.

• Australia Is “Going Down Under”: “The Bubble Is About To Burst”, RBS Warns (ZH)

[..] just because other vulnerable countries aren’t beset with ethnic violence and/or street protests doesn’t mean they too aren’t facing crises due to falling commodity prices and the slowdown of the Chinese growth machine. One such country is Australia, which in some respects is an emerging market dressed up like a developed economy, and which of course has suffered mightily from the commodities carnage and China’s transition away from an investment-led growth model. Out with a fresh look at the risks facing Australia is RBS’ Alberto Gallo. Notable excerpts are presented below. From RBS:

Australia has become a commodity focused economy, with an increasing exposure to China. For the past decades, Australia has been buoyed by the rapid Chinese expansion, which outpaced the rest of the world. Australia benefited from China’s strong demand for commodities given its investment-led growth model. China is Australia’s top export destination and 59% of those exports are in iron-ore. But as China struggles to manage its ongoing credit crunch and continues its shift to consumption-led growth Australia’s economy is likely to be hurt by lower demand for commodities. The economy is slowing due to external headwinds. Last quarter, Australian GDP grew at just 0.2% QoQ, its lowest level in the last three years (and below the market consensus of 0.4%).

According to the Australian Bureau of Statistics (ABS) the growth rate was driven by higher domestic demand, while lower exports and a declining mining industry continue to present headwinds. Mining’s gross value-added to GDP fell by – 0.3% QoQ in Q2. Despite Reserve Bank of Australia (RBA) governor, Glenn Stevens, citing lower growth as potentially a “feature of the post financial crisis world” meaning that “potential growth is a bit lower”, Australia’s slowing economy is more than just a victim of the post financial crisis world, in our view. Rising unemployment coupled with soaring house prices and vulnerabilities in the commodity and construction sectors are all cause for concern. Unemployment is rising, and could increase further, given the high proportion of employment in the vulnerable mining and construction sectors.

Unemployment is at 6.2%, just shy of the ten year high of 6.3%. Although the number itself is not worryingly high, unemployment has been rising for the last three years, and is likely to continue in our view. Mining and commodity sectors employ 4.5% of the workforce. With lower demand for commodities from China, unemployment in these sectors could rise. Also, unemployment may rise in the construction sector (8.9% of workforce) given vulnerabilities in the housing market. There are domestic headwinds, too. The housing market is vulnerable, with overvalued properties and over-levered households. House prices in Australia have risen by 22% in the last three years, with property prices in Sydney overtaking those in London. House prices have risen faster than both disposable income and inflation in recent years, with the gap between growth in house prices and household income closing by over 40% in the last three years.

Like oil.

• Half of World’s Coal Output Is Unprofitable (Bloomberg)

Half of the world’s coal isn’t worth digging out of the ground at current prices, according to Moody’s Investors Service. The global metallurgical coal benchmark has fallen to the lowest level in a decade, settling last month at $89 a metric ton. “Further production cuts are necessary to bring the market back into balance,” Moody’s analysts including Anna Zubets-Anderson wrote in a report on Thursday. China’s slowing appetite for the power-plant fuel and steelmaking component has depressed the seaborne market, creating a worldwide glut. In the U.S., cheap natural gas is stealing coal’s share of the power generation market. And the strong dollar has tempered exports.

In North America, the credit rating company said it expects the industry’s combined earnings before interest, taxes, depreciation and amortization to decline by 10% next year after a 25% plunge in 2015. The Illinois Basin stands to be the “most resilient to current market dynamics” because of its lower mining costs and its location in the middle of the country where power plants still burn the fuel, Moody’s said. “We believe that Foresight Energy, a producer concentrated in the region, will be able to maintain steady production volumes over the next two to three years,” Zubets-Anderson wrote.

Armstrong swims in dark waters.

• From Here On Out, This Is Not A Video Game – This Is Real (Martin Armstrong)

The unleashing of Russian firepower in Syria in support of the Syrian government came precisely on the day of the Economic Confidence Model. I have come to learn from observing this model that major world events, whatever the major focus may be, appear to line up with the ECM. This target has been huge for us given that we have TWO WAR CYCLE MODELS: (1) civil unrest that leads to revolution, and (2) international war. It is sort of like the Blood Moon stuff insofar as it does not line up so easily. The main convergence of the War Cycle between both models began to turn in 2014. The economic war against Russia imposing sanctions began on March 6, 2014 (2014.178) when Obama signed Executive Order 13660 that authorizes sanctions on individuals and entities responsible for violating the sovereignty and territorial integrity of Ukraine.

The next day, this order was followed by Executive Order 13661, which claimed that Russia had undermined the democratic processes. On March 20, 2014, Obama issued a new Executive Order: “Blocking Property of Additional Persons Contributing to the Situation in Ukraine”. This order expanded the scope of the two previous orders to the Government of the Russian Federation; it included its annexation of Crimea and its use of force in Ukraine, which the U.S. claimed was a threat to the national security and foreign policy of the United States. Then on April 28, Obama imposed more sanctions on Russia. The third round of U.S. sanctions on Russia began from October into December 2014 over the turning point. On October 3, 2014, Joe Biden said, “It was America’s leadership and the president of the United States insisting, oft times almost having to embarrass Europe to stand up and take economic hits to impose costs.”

The EU imposed sanctions on December 18, 2014, which banned some investments in Crimea and halted support for the Russian Federation Black Sea exploration of oil and gas. The EU sanctions also prevented European companies from offering tourism services and purchasing real estate or companies in Crimea. On December 19, 2014, Obama imposed sanctions on Russian-occupied Crimea by executive order, which prohibited exports of U.S. goods and services to the region. The actual turning point was 2014.8871: November 20, 2014. The one event that took place precisely on that day was the Supreme Court’s ruling to allow same-sex marriage in South Carolina. This decision sparked civil unrest against the government throughout the Bible Belt states. On that same day, Obama took executive action on immigration. On November 24, the Missouri Grand Jury made ruled not to indict Officer Wilson in the shooting of Michael Brown on August 9, which sparked the beginning of civil unrest, such as the Black Lives Matter movement, in a rebuke of corrupt police forces.

Is there any sense of humanity left in Britain? These few thousand people can obviously be of much more value than an equal number of fat Brits.

• Channel Tunnel Closed As Migrants Occupy Complex (AFP)

Traffic through the Channel Tunnel connecting Britain and France was suspended early this morning after around 100 migrants entered the French side of the tunnel complex, the company operating it said in a statement. “At around 12:30 am, around 100 migrants forced a closure and the entry of security agents into the tunnel,” a Eurotunnel spokeswoman told AFP. She said police were at the site and that traffic remained suspended. Ten people, including seven migrants, suffered minor injuries in the storming of the tunnel, a firefighter at the scene said.

The interior ministers of France and Britain in August signed an agreement to set up a new “command and control centre” to tackle smuggling gangs in Calais, as Europe grapples with its biggest migration crisis since World War II. It came after attempts to penetrate the sprawling Eurotunnel site spiked that month, with migrants trying several times a night to outfox hopelessly outnumbered security officials and police. Thousands of people from Africa, the Middle East and Asia are camped in Calais in slum-like conditions, and at least 13 have died since 26 June trying to cross over into Britain, where many have family and work is thought easier to find.

Count on more.

• UN Refugee Agency: Over 1.4 Million To Cross Mediterranean To Europe (Reuters)

The UN refugee agency expects at least 1.4 million refugees to flee to Europe across the Mediterranean this year and next, according to a document seen by Reuters on Thursday, a sharp rise from initial estimates of 850,000. “UNHCR is planning for up to 700,000 people seeking safety and international protection in Europe in 2015,” reads the document, a revision to the agency’s existing appeal for funds. “… It is possible that there could be even greater numbers of arrivals in 2016, however, planning is based for the moment on similar figures to 2015.” UNHCR launched the appeal on Sept. 8 with preliminary plans for 400,000 refugee arrivals in 2015 and 450,000 in 2016. But the 2015 figure was surpassed within days of its publication, and by Sept. 28, 520,957 had arrived.

The revised appeal totals $128 million, a sharp increase from the initial appeal for $30.5 million, and UNHCR asked donors to allow their funds to be allocated flexibly because of the “very volatile operational context”. The appeal is also broadened to include transit countries in the Middle East and North Africa, to enable refugees to get help from UNHCR at an earlier stage of their journey. Although the vast majority of recent arrivals have travelled from Turkey through Greece, Macedonia and Serbia, possible alternative routes mapped out by UNHCR include the sea route from Turkey to Italy, from Greece through Albania to Montenegro or Italy, and from Montenegro by boat to Croatia. Most are fleeing the Syrian civil war, with many others seeking to escape conflict or poverty in Iraq, Afghanistan, Africa or elsewhere.

Will The Fed Pick A Winning Combination?

Sep 162015

September 16, 2015 Posted by Raúl Ilargi Meijer at 10:13 am Finance Tagged with: Banks, China, Fed, inflation, jobs, profits, Wall Street 6 Responses »

NPC Fire at S. Kanns warehouse, Washington, DC 1908

It’s highly amusing to read all the ‘expert’ theories on a Federal Reserve hike or no hike tomorrow, but it’s also obvious that nobody really has a clue, and still feel they should be heard. Don’t know if that’s so smart, but I guess in that world being consistently wrong is not that big a deal.

Thing is, US economic numbers are so ‘massaged’ and unreliable, the Fed can pick whichever way the wind blows to argue whatever decision it makes. As long as jobs numbers get presented for instance without counting the 90-odd million Americans who are not in the labor force, and a majority of new jobs are waiters, just about anything goes in that area. Numbers on wages are just as silly.

And people can make inflation a big issue, but hardly anyone even knows what inflation is. Wonder if the Fed does. It had better, because if you don’t look at spending, prices don’t tell you a thing. They surely must look at velocity of money charts from time to time?!

The biggest thing for the Fed might, and perhaps must, be the confidence factor. It’s been talking about rate hikes for so long now that if it decides to leave rates alone, it will only create more uncertainty down the road. Uncertainty about the economy (no hike would suggest a weak economy), and also about its own capabilities.

If all you have is talk, people tend to take you a lot less serious. Moreover, the abject -and grossly expensive- failure of the Chinese central bank to quiet down its domestic stock markets has raised questions about the omnipotence of all central banks.

This morning’s spectacle of a 5% rise in Shanghai in under an hour near the close no longer serves to restore confidence, it further undermines it. Beijing doesn’t seem to get that yet. But the Fed might.

No rate hike is therefore an enormous potential threat to Fed credibility. And that’s a factor it may well find much more important than a bunch of numbers it knows are mostly fake anyway. It has for years been able to fake credibility, but that is no longer all that obvious. And delaying a hike will certainly not boost that credibility.

Sure, volatility is an issue too, but volatility won’t go down on a hike delay. It’ll simply continue – and perhaps rise- until the next meeting. There’s nothing to gain there.

Besides, don’t let’s forget how crazy it is that the entire financial world is dead nervous ahead of a central bank meeting, even as everyone knows it’s all just about a decision on a very small tweak in rates.

Yellen et al are very aware of the risks of that, even if they love the limelight it brings. All that attention tells people, meeting after meeting, that the US economy is not functioning properly, no matter what the official statements say.

There are ‘experts’ talking about the dangers of emerging markets if the Fed votes Yes on a hike, but those markets are not even part of its mandate. if Yellen thinks something can be gained from pushing emerging markets and currencies down further, she’ll do just that.

Still, all this is just pussyfooting around the bush. The Fed may have noble mandates to help the real economy, but it will in the end always decide to do what’s best for Wall Street banks. And these banks could well make a huge killing off a rate hike.

They can profit from trouble and volatility in emerging markets as well as domestic markets, provided they’re well-positioned. Given that they’ve had ample time, and it’s hard to answer the question who else is in a good position, we may have an idea which wind the wind will blow.

Increasing credibility for the Fed and increasing profits for Wall Street banks. Might be a winning combination. And if Yellen is realistic about the potential for a recovery in the American economy, why would she not pick it?

Debt Rattle July 3 2015

Jul 032015

July 3, 2015 Posted by Raúl Ilargi Meijer at 10:22 am Finance Tagged with: cash crunch, China, debt relief, euro, Greece, IMF, jobs, Steve Keen, stocks, Troika 13 Responses »

Harris&Ewing Buying Army surplus food sold at fish market 1919

• Greek Banks Down To €500 Million In Cash Reserves As Economy Crashes (AEP)

• Cash Crunch Hits Everyday Life in Greece (WSJ)

• Troika Maneuvering to Rig Greek Referendum (Martin Armstrong)

• Greece’s Highest Court To Rule On Legality Of Referendum (Guardian)

• When Greece Forgave Germany’s Debt (AP)

• Greece Shows ECB’s Stress Tests Were Nonsense (FT)

• Only the No Can Save the Euro (James K. Galbraith)

• The Greek Vote (Steve Keen)

• Greece Needs $40 Billion in Fresh Euro-Area Money, IMF Says (Bloomberg)

• IMF Says Greece Needs Extra €60 Billion In Funds And Debt Relief (Guardian)

• Why Not Donate To Something That Will Make A Real Difference To Greeks (PP)

• China May Aid Greece Directly – Think Tank Expert (Sputnik)

• Schulz Says Tsipras Should Resign After ‘Yes’ Vote, Wants Technocrats (AFP)

• US Part-Time Jobs Surge By 161,000; Full-Time Jobs Tumble By 349,000 (ZH)

• Causes and Consequences of Income Inequality: A Global Perspective (IMF)

• China’s Stocks Hit Critical Low Despite Government Lifelines (SCMP)

• China’s Boom Has World Bank Worried (Pesek)

• Chinese Stocks Just Lost 10 Times Greece’s GDP (Bloomberg)

• Top Economist Warns Of New Zealand Recession Risk (NZ Herald)

• Benjamin Lawsky’s Legacy (NY Times)

• Arise Steve Keen, Forecaster Of The Year (SMH)

The referendum will be held against the backdrop of a warzone.

• Greek Banks Down To €500 Million In Cash Reserves As Economy Crashes (AEP)

Greece is sliding into a full-blown national crisis as the final cash reserves of the banking system evaporate by the hour and swathes of industry start to shut down, precipitating the near disintegration of the ruling coalition. Business leaders have been locked in talks with the Bank of Greece, pleading for the immediate release of emergency liquidity funds (ELA) to cover food imports and pharmaceutical goods before the tourist sector hits a brick wall. Officials say the central bank will release the funds as soon as Friday, but this is a stop-gap measure at best. “We are on a war footing in this country,” said Yanis Varoufakis, the Greek finance minister. The daily allowance of cash from many ATM machines has already dropped from €60 to €50, purportedly because €20 notes are running out.

Large numbers are empty. The financial contagion is spreading fast as petrol stations and small businesses stop accepting credit cards. Constantine Michalos, head of the Hellenic Chambers of Commerce, said lenders are simply running out of money. “We are reliably informed that the cash reserves of the banks are down to €500m. Anybody who thinks they are going to open again on Tuesday is day-dreaming. The cash would not last an hour,” he said. “We are in an extremely dangerous situation. Greek companies have been excluded from the electronic transfers of Europe’s Target2 system. The entire Greek business community is unable to import anything, and without raw materials they can’t produce anything,” he said.

Pavlos Deas, owner of an olive processing factory in Chalkidiki, told The Telegraph that he may have to shut down a plant employing 250 people within days. “We can’t send any money abroad to our suppliers. Three of our containers have been stopped at customs control because the banks can’t give a bill of landing. One is full of Spanish almonds, the others full of Chinese garlic,” he said. “We don’t know how we are going to execute and export an order of 60 containers for the US. We don’t even have enough gas. We asked for 10,000 litres but they are only letting us have 2,000. It’s being rationed by the day. Factories are closing around us in a domino effect and we’re all going to lose everything if this goes on,” he said.\

Financial warfare.

• Cash Crunch Hits Everyday Life in Greece (WSJ)

At an automated teller machine underneath the Acropolis, Angeliki Andreaki clutched her debit card with both hands. She pays her bills in cash, and €330 in rent and €39 in telephone bills were due Wednesday. “Tsipras has turned this country into North Korea,” the 83-year-old Ms. Andreaki said Tuesday, shaking her head about Greece’s prime minister, Alexis Tsipras. “I can’t believe at this age I have to line up to get rationed cash.” She withdrew as much as she could—just €60 ($66)—and went straight to pay her phone bill. She said she would have to come back for five more days to get enough cash for the rent. This is everyday life in Greece since it shut down its banking system and imposed controls to prevent money from flooding out of the country.

Greece’s ruling party continued to say it was offering new compromises to its creditors and urged a “no” vote in Sunday’s referendum. European leaders dismissed the overtures as insufficient and said they would hold off on further negotiations until the vote. The first opinion surveys in Greece since Mr. Tsipras called for the referendum show conflicting results but suggest the outcome could be close. The freezing of Greece’s banking system is the most dramatic moment of the country’s five-year debt crisis—and perhaps its most pivotal. Since Monday, Greeks can get only €60 a day at cash machines and can’t transfer money abroad. How long the remaining cash lasts and how unsettled Greeks become will be big factors in Sunday’s referendum on creditors’ demands for more austerity in exchange for more bailout funds.

The tighter the squeeze, the more Greeks might vote “yes” to reconcile with creditors, analysts say. As of Wednesday, Greece’s banking system had about €1 billion in cash left, according to a person familiar with the situation. Even with the €60-a-day limit on ATM withdrawals from Greek’s closed banks, “it’s a matter of a few days” until the money runs out, this person said. By Wednesday, many ATMs in central Athens had constant lines of people waiting to withdraw their daily limit. The crunch has suffused the economy. Merchants report lower spending. Wholesalers can’t pay for supplies. Importers’ foreign counterparts won’t trade.

“..expect biased vote counting in favor of a “YES” vote to stay in the euro..”

• Troika Maneuvering to Rig Greek Referendum (Martin Armstrong)

In a TV interview, Mr. Varoufakis said very clearly, “This is a very dark moment for Europe. They have closed our banks for the sole purpose of blackmailing what? Getting a ‘Yes’ vote on a non-sustainable solution that would be bad for Europe.” I must admit, most politicians do not come even close to the truth, but Varoufakis seems to be the ONLY finance minister who understands the demands of the Troika are not plausible for any nation. Merkel has tried to skirt any responsibility by saying this is a Troika decision. One must seriously ask, are those in the Troika just totally brain-dead? Their blackmail and economic war against Greece will be evidence to ensure that Britain leaves the EU. The ONLY thing that saved Britain was Maggie Thatcher’s effort to keep Britain out of the euro for she knew far too well where it would lead.

The view in Poland is also now anti-euro. Any Brit who now does not vote to get out of the EU and the grips of the Troika is ignorant of world events and the political power play going on. The EU leaders will not travel to Athens until after the referendum. Suddenly they realize that their powers are so off the wall that they dare not expose their own schemes. Hollande of France wants a resolution for he fears a Frexit is gaining momentum. Obama wants a resolution, fearing Greece will be forced into the arms of Russia, breaking down NATO. Yet through all of this, there is no hope because those in power are clueless. The Troika refuses to solve the euro crisis because they only see their own self-interest and assume they can force their will upon all the people.

The Troika is doing everything in their power to rig the Greek referendum to make it appear that the Greek people want Brussels. The Troika deliberately closed the banks to punish the people of Greece, and to show them what exiting the euro means. This appears to be their only way of diverting the crisis with orchestrating a fake “YES” vote to economic suicide. The Troika will attempt to rig the referendum as they did with the Scottish elections. So expect biased vote counting in favor of a “YES” vote to stay in the euro. As Stalin said, “Those who vote decide nothing. Those who count the vote decide everything.”

Maybe teh Troika can move in on that as well.

• Greece’s Highest Court To Rule On Legality Of Referendum (Guardian)

Greece’s highest administrative court will rule on whether the country’s bailout referendum violates the constitution, amid growing concern that the hastily organised vote falls short of democratic standards. With less than 48 hours until polling day on Sunday, the yes and no sides will stage large rallies in Athens on Friday evening. The Greek prime minister, Alexis Tsipras, is expected to turn out at the no rally, having attacked his eurozone partners for trying to “blackmail” his country into accepting a bad deal. Greeks are being asked whether to support an EU bailout deal that would grant the debt-stricken country money in exchange for spending cuts and further reform. However, the bailout plan no longer exists, having lapsed on 30 June.

Eurozone leaders have lined up to say that voting no means saying goodbye to Greece’s eurozone membership, but Greece’s radical left Syriza-led government insists a no vote would simply boost its negotiating hand. Later on Friday, the Council of State will determine whether the vote violates Greece’s constitution, which bans referendums on fiscal policy. Europe’s top human rights body, the Council of Europe, has already said the vote falls short of international standards, because the poll was called at short notice and the questions asked are not clear. The Strasbourg-based organisation, which is not part of the European Union, recommends that voters should be sent “balanced campaign material” at least two weeks before a vote. Instead Greeks will have had just eight days to decide on a question couched in jargon-heavy “financialese”.

And the Greeks didn’t murder anyone.

• When Greece Forgave Germany’s Debt (AP)

Forgiving debt, if done right, can get an economy back on its feet. The IMF certainly thinks so, according to a new report in which it argues Greece should get help. But Germany, another major creditor to Greece, is resisting, even though it should know better than most what debt relief can achieve. After the hell of World War II, the Federal Republic of Germany – commonly known as West Germany – got massive help with its debt from former foes. Among its creditors then? Greece. The 1953 agreement, in which Greece and about 20 other countries effectively wrote off a large chunk of Germany’s loans and restructured the rest, is a landmark case that shows how effective debt relief can be. It helped spark what became known as the German economic miracle.

So it’s perhaps ironic that Germany is now among the countries resisting Greece’s requests for debt relief. Greek Finance Minister Yanis Varoufakis claims debt relief is the key issue that held up a deal with creditors last week and says he’d rather cut off his arm than sign a deal that does not tackle the country’s borrowings. The IMF backed the call to make Greece’s debt manageable with a wide-ranging report on Thursday that also blames the Greek government for being slow with reforms. Despite years of budget cuts, Greece’s debt burden is higher than when its bailout began in 2010 – more than €300 billion, or 180% of annual GDP – because the economy has shrunk by a quarter. Here’s a look at when Germany got debt relief, and how such action might help Greece.

The 1953 London Agreement, hammered out over months, was generous to West Germany. It cut the amount it owed, extended the repayment schedule and granted low interest rates. And crucially, it linked West Germany’s debt repayment schedule to its ability to pay – tying repayments to the trade surplus it was running and expected to run. That created an incentive for trading partners to buy German goods. The deal effectively blocked claims for reparations for the destruction the Nazis inflicted on others. But it wasn’t a one-way street. “The London Agreement gave Germany sweeping debt forgiveness and protection from creditors, in exchange for pro-market reforms,” Professor Albrecht Ritschl, of the London School of Economics said.

West Germany was able to borrow on international markets again, and, free of onerous debt payments, saw its economy grow strongly. Development activists cite that case when arguing for easier terms for troubled countries today, including Greece. “The same opportunity should be given to Greece that was given to Germany in 1953,” said Eric LeCompte, executive director of the debt relief organisation Jubilee USA.

“..there wouldn’t be any reason to fear default and pull deposits.”

• Greece Shows ECB’s Stress Tests Were Nonsense (FT)

The key challenge is figuring out whether a private bank is solvent in the heat of the moment. That, of course, was the whole point of the asset quality review and the comprehensive assessment. The methodology may not have been perfect but the ECB’s leaders can’t endorse the results without also agreeing that the banks that passed the tests will have unrestricted access to liquidity facilities from the central bank. It’s a trade-off: you get government support in a crisis in exchange for regulatory approval that your business is sound. That, in turn, ought to prevent the risk of runs. In Greece, the ECB doesn’t seem to be honoring this deal. Forget whether or not Greece would be better off leaving the euro.

The government has said it doesn’t want to leave and, strictly speaking, there is no reason it would have to leave even if it defaulted on certain outstanding sovereign debts. The only thing that would force an exit would be if the banks were in danger of failing and the government decided to restore monetary sovereignty in order to provide liquidity. (Default on only some debts wouldn’t have to hit the banks.) Even so, some Greek citizens have been converting their euro deposits into paper euros because they are worried about exit and devaluation. That could be self-fulfilling if it endangered the stability of the banks. However, it wouldn’t be much of an issue if Draghi’s 2012 promise that “the ECB is ready to do whatever it takes to preserve the euro” were genuine.

Greeks would know that the ECB would do its job — lend unconditionally to the Greek banks it had declared solvent back in October and print enough euro cash to ensure that the payments system would continue to operate smoothly — and there wouldn’t be any reason to fear default and pull deposits. (Yes, it’s possible that the ECB could end up lowering the initial costs of exit if central bank liquidity ended up replacing all domestic deposits but we’re still a long way off from that.) The ECB’s unwillingness to do its job as a lender of last resort is bad for Greece but it’s even worse as a precedent for other countries in the euro area. Plenty of other countries share Greece’s bad demographics, slow growth, and lots of public debt owed to foreigners, especially once QE proceeds further. Would they too be forced out of the single currency the next time growth ticks downward and the people elect a government unfavoured by elites?

Following the logic. Must read from Yanis’ close friend and advisor. Yes vote will still break euro.

• Only the No Can Save the Euro (James K. Galbraith)

Greece is heading toward a referendum on Sunday on which the future of the country and its elected government will depend, and with the fate of the euro and the European Union also in the balance. At present writing, Greece has missed a payment to the IMF, negotiations have broken off, and the great and good are writing off the Greek government and calling for a “Yes” vote, accepting the creditors’ terms for “reform,” in order to “save the euro.” In all of these judgments, they are, not for the first time, mistaken. To understand the bitter fight, it helps first to realize that the leaders of today’s Europe are shallow, cloistered people, preoccupied with their local politics and unequipped, morally or intellectually, to cope with a continental problem.

This is true of Angela Merkel in Germany, of François Hollande in France, and it is true also of Christine Lagarde at the IMF. In particular North Europe’s leaders have not felt the crisis and do not know the economics, and in both respects they are the direct opposite of the Greeks. For the North Europeans, the professionals at the “institutions” set the terms, and there is only one possible outcome: to conform. The allowed negotiation was of one type only: more concessions by the Greek side. Any delay, any objection, could be seen only as posturing. Posturing is normal of course; politicians expect it. But to his fellow finance ministers the idea that the Greek Finance Minister Yanis Varoufakis was not posturing did not occur. When Varoufakis would not stop, their response was loathing and character assassination.

Contrary to some uninformed commentary, the Greek government knew from the beginning that it faced fierce hostility from Spain, Portugal and Ireland, deep suspicion from the mainstream left in France and Italy, implacable obstruction from Germany and the IMF, and destabilization from the European Central Bank. But for a long time, these points were not proved internally. There are influential persons close to Tsipras who did not believe it. There are others who felt that, in the end, Greece would have to take what it could get. So Tsipras adopted a policy of giving ground. He let the accommodation caucus negotiate. And as they came back with concession after concession, he winced and agreed.

Ultimately, the Greek government found that it had to bow to the creditors’ demands for a large and permanent primary surplus target. This was a hard blow; it meant accepting the austerity that the government had been elected to reject. But the Greeks did insist on the right to determine the form of austerity, and that form would be mainly to raise taxes on the wealthiest Greeks and on business profits. At least the proposal protected Greece’s poorest pensioners from further devastating cuts, and it did not surrender on fundamental labor rights. The creditors rejected even this. They insisted on austerity and also on dictating its precise shape. In this they made clear that they would not treat Greece as they have any other European country. The creditors tabled a take-it-or-leave-it offer that they knew Tsipras could not accept. Tsipras was on the line in any case. He decided to take his chances with a vote.

“So what do you do in a negotiation where (a) you have no choice but to negotiate and (b) your opponent won’t negotiate?”

• The Greek Vote (Steve Keen)

There is an adage in politics that you should never put anything to the vote unless you are sure of the outcome beforehand. On that front, the referendum Greeks will vote in this Sunday is a mistake, because the vote could go either way. If the majority votes No, as Syriza hopes, then it—hopefully—will strengthen its hand in future negotiations with the Troika. But if the majority votes Yes, then Syriza will have to capitulate to the Troika and accept its unbending policy of austerity. But I can also understand Tsipras’s decision to throw the issue over to a vote. Syriza’s expectation, when it won the election, was that its mandate from the Greek people would enable it to bargain with the Troika, and to therefore negotiate a less onerous economic program. Reality has proved otherwise.

Every time Syriza has compromised on one of its “red lines”, the Troika has demanded that it cross the red line behind it. So what do you do in a negotiation where (a) you have no choice but to negotiate and (b) your opponent won’t negotiate? You play whatever wildcard you have in your pack—and the only wildcard that Syriza has is that it was elected by its people, whereas the Troika’s officials were not. If the No vote wins, then it has a further right to insist that it is following the will of its people. We will return to almost daily Greek crises as each debt rollover or instalment payment arises, but Greece will have the power to legitimately threaten total default as a way of forcing the Troika to take a backwards step. But if the vote goes against Syriza, then the political balance in Greece will shift dramatically.

The Greeks will, in effect, have chosen to continue with austerity, even though just six months ago they elected a new government committed to ending it. Though Syriza will remain in power after Saturday, its spirit will have been irrevocably broken. Some political changes will flow immediately. Yanis Varoufakis has confirmed that he will resign—while also accepting the decision of the Greek people and assisting whoever replaces him to sign the terms of capitulation that the Troika wants. But that, as Yanis would vehemently agree, is small-scale, personal stuff. I have always found it amusing, in a perplexing way, that Schaeuble, the Troika’s chief hard man, has taken such umbrage to the left-wing Syriza and its metrosexual political leaders.

Clearly he prefers to negotiate with rightwing politicians like himself. But he seems unaware that, if the Greek tragedy rolls on, he may instead have to negotiate with rightwing politicians unlike himself—the neo-Nazi Golden Dawn. Golden Dawn is also an anti-austerity party, and before the sudden rise of Syriza, it was the premiere anti-austerity party in Greece. It came 3rd in the elections that brought Syriza to power—even though its leaders were in gaol pending a murder trial that began in May—and in the 2014 European Union elections, it scored just under 10% of the Greek vote.

“The report is a “confession” of the bailout’s failure..”

• Greece Needs $40 Billion in Fresh Euro-Area Money, IMF Says (Bloomberg)

Greece needs at least another €36 billion over the next three years from euro-area states and easier terms on existing debt to keep the nation’s finances sustainable, according to an IMF analysis. Even if Greece delivers on reforms proposed by its international creditors, euro countries will have to come up with new financing and ease the nation’s debt load through steps such as doubling maturities on existing loans, according to a June 26 “preliminary draft” debt-sustainability analysis released Thursday. The Washington-based lender puts Greece’s total financing needs at €50 billion from October 2015 through the end of 2018. It also says state deposits in the Greek banking system had declined to less than €1 billion at the end of May, before the nation closed its banks and imposed capital controls.

Any weakening of the package proposed by the IMF and its creditor partners, the European Commission and ECB, means Europeans must accept a “haircut,” or writedown on the principal of the loans, according to the analysis. The document’s date is the day before Greek Prime Minister Alexis Tsipras called a surprise July 5 referendum on the creditors’ proposal. The analysis suggests any new deal is doomed to keep Greece wallowing in debt unless the Greek government and its European creditors can make further concessions. It also indicates the IMF, smarting from a $1.7 billion missed payment by Greece this week, may be reluctant to dispense new money without better prospects that the nation’s debt will be brought under control.

The timing of the analysis will prove controversial, since Tsipras is sure to use it to bolster his argument that Greeks should reject the creditors’ proposal in Sunday’s vote, said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. The IMF is suggesting that “Greece was essentially on track last November until Syriza blew up the political system and now the economy,” while hinting that it wouldn’t welcome working with the anti-austerity party in the future, he said. The IMF report justifies the Greek government’s position and its persistence in including debt restructuring in any deal with creditors, said Gabriel Sakellaridis, a government spokesman. The report is a “confession” of the bailout’s failure, he said in an e-mail.

Curious: “Alexis Tsipras welcomed the IMF’s intervention saying in a TV interview that what the IMF said was never put to him during negotiations”.

• IMF Says Greece Needs Extra €60 Billion In Funds And Debt Relief

The IMF has electrified the referendum debate in Greece after it conceded that the crisis-ridden country needs up to €60bn of extra funds over the next three years and large-scale debt relief to create “a breathing space” and stabilise the economy. With days to go before Sunday’s knife-edge referendum that the country’s creditors have cast as a vote on whether it wants to keep the euro, the IMF revealed a deep split with Europe as it warned that Greece’s debts were “unsustainable”. Fund officials said they would not be prepared to put a proposal for a third Greek bailout to the Washington-based organisation’s board unless it included both a commitment to economic reform and debt relief. According to the IMF, Greece should have a 20-year grace period before making any debt repayments and final payments should not take place until 2055.

It would need €10bn to get through the next few months and a further €50bn after that. The Greek prime minister Alexis Tsipras welcomed the IMF’s intervention saying in a TV interview that what the IMF said was never put to him during negotiations. Urging a no vote on Sunday he said: “Voting no to a solution that isn’t viable doesn’t mean saying no to Europe. It means demanding a solution that’s realistic. “Either you give in to ultimatums or you opt for democracy. The Greek people can’t be bled dry any longer.” Tsipras is campaigning for a no vote in the referendum on Sunday, which is officially on whether to accept a tough earlier bailout offer, to impress on EU negotiators that spiralling poverty and a collapse in everyday business activity across Greece has meant further austerity should be ruled out of any new rescue package.

Greece’s finance minister, Yanis Varoufakis, pledged to resign if his country votes yes to the plan proposed by the EU, the ECB and what appears to be an increasingly reluctant IMF. Varoufakis, the academic-turned-politician who has riled his eurozone counterparts, said he would not remain finance minister on Monday if Greece voted yes. He said he would rather “cut off his arm” than accept another austerity bailout without any debt relief for Greece, adding that he was “quite confident” the Greek people would back the government’s call for a no vote. The Greek government’s defiant stance came as the head of the Hellenic Chambers of Commerce, Constantine Michalos, said he did not believe Greece’s banks would be able to reopen next Tuesday without further funding, telling the Daily Telegraph he had been told cash reserves were down to €500m.

Bit late?!

• Why Not Donate To Something That Will Make A Real Difference To Greeks (PP)

The campaign to crowdfund €1.6 billion for Greece on indiegogo is a wonderful initiative to show solidarity, and indeed it has collected an astonishing amount of money in a short time. The only problem is that if the full amount is not collected, all donations will be returned. Although we’d like to hope that there’s a chance the campaign will reach its target, it is quite a long shot. So we’d like to present you with an alternative way to help Greece right now. The Greek media is corrupt. This might not come as a big shock, maybe there are corrupt media in your country too, but the truth of the situation here goes far beyond what you’d imagine. According to the NGO Reporters Without Borders, Greece ranks 93rd in the global index of press freedom (placing it last in Europe).

Private TV channels, newspapers and radio stations are majority owned by 5 key families, who use them to ensure their family of companies obtain government contracts. These private media outlets are members of large groups of companies who undertake construction projects, and shipowners who control the oil trade and imports. During the last few days, the mainstream media have declared war on citizens, taking a position on the referendum and violating any notion of journalistic ethics. Their reporting is designed to terrorize and create a culture of fear, without any trace of truth or balance, whilst presenting themselves as objective and responsible.

On Monday, the largest TV station was broadcasting misinformation all day about cash withdrawals being reduced from 60 to 20 euros -reports which had been denied three times officially by the government- trying to provoke a bankrun. Nobody can control them. The competent inspection body is at present too weak to impose any sanctions. At the same time the Greek state’s efforts to pursue €102 million in unpaid taxes from these media companies for the use of public frequencies (common practice in other EU countries) has brought zero results. But new technologies have created new communication channels.

Big worry for US.

• China May Aid Greece Directly – Think Tank Expert (Sputnik)

China may help Greece through EU instruments or directly, a member of the Chinese Academy of Social Sciences, affiliated with China’s State Council, told Sputnik. China may help Greece directly through its new financial instruments, director of the Quantitative Finance Department at China’s Institute of Quantitative and Technical Economics told Sputnik China. Investment bank Goldman Sachs predicted in a report published on Wednesday that in a worst-case scenaria China’s exports would decline 2.2% as a result of Greece’s economic crisis. Other than exports to Greece itself, the crisis could also hurt the economies of nearby countries, where Chinese businessmen have also made considerable investments.

“The Greek crisis has an undoubtedly seriously influence on China’s trade with Greece and investment into the country. But I think that European countries together with China can help Greece overcome the problems that arose,” Fan Mingtao said. Fan added that the crisis is not likely to be an overbearing problem in the long term, although China will suffer losses in trade with Greece as a result. “I believe there are two ways to give Greece Chinese aid. First, within the framework of the international aid through EU countries. Second, China could aid Greece directly. Especially considering the Silk Road Economic Belt and the Asian Infrastructure Investment Bank. China has this ability,” Fan added. According to Fang, China has the financial ability to aid Greece if needed, because of its existing Silk Road Economic Belt project and the Asian Infrastructure Investment Bank.

Schulz should be fired for such comments. Hoe doesn’t understand what democracy in a sovereign nation means.

• Schulz Says Tsipras Should Resign After ‘Yes’ Vote, Wants Technocrats (AFP)

European Parliament president Martin Schulz said his faith in the Greek government had reached “rock bottom,” and that he hopes it resigns after Sunday’s referendum. Prime Minister Alexis Tsipras has urged citizens to vote against EU and IMF bailout conditions in the plebiscite Sunday. Tsipras announced the balloting after talks with creditors broke down, leading Greece to default on a debt payment and stoking fears it could crash out of the euro. Schulz on Thursday told German Handelsblatt business daily that “new elections would be necessary if the Greek people vote for the reform programme and thus for remaining in the eurozone and Tsipras, as a logical consequence, resigns.”

The time between the departure of Tsipras’ hard-left Syriza party and new elections would have to “be bridged with a technocratic government, so that we can continue to negotiate,” Schulz was quoted as saying. “If this transitional government reaches a reasonable agreement with the creditors, then Syriza’s time would be over,” he said. “Then Greece has another chance.” Schulz charged that Tsipras was “unpredictable and manipulates the people of Greece, in a way which has almost demagogical traits.” “My faith in the willingness of the Greek government to negotiate has now reached rock bottom,” he said Greek Finance Minister Yanis Varoufakis said Thursday the government “may very well” quit if the public went against it in Sunday’s plebiscite by voting for more austerity in return for international bailout funds.

When will the nonsense stop?

• US Part-Time Jobs Surge By 161,000; Full-Time Jobs Tumble By 349,000 (ZH)

While the kneejerk reaction algos were focusing on the +223K jobs number reported by the Establishment Survey, few if anyone notched that the Household survey reported a decline of 56,000 workers in June.

But what’s worse, is that according to this survey which according to some is far more reliable than its peer, the composition of the US labor force once again deteriorated rapidly with part-time jobs added in June surging by 161,000 while the number of full time jobs tumbled by 349,000.

Putting this number in context, while the total number of US workers has long since surpassed its previous crisis high, the number of full time US workers has yet to overtake its November 2007 lever of 121.9 million, and in June dropped to 121.1 million.

Why is this a problem: because while the US still has 800k full-time jobs to go to at least regain the prior peak, during the same time period the US civilian, non-institutional population has risen from 232.9 million to 250.7 million: an increase of 17.724 million!

More proper IMF work. Will also be silenced, just like the Greek debt relief report.

• Causes and Consequences of Income Inequality: A Global Perspective (IMF)

Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades. Inequality trends have been more mixed in emerging markets and developing countries (EMDCs), with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain. Not surprisingly then, the extent of inequality, its drivers, and what to do about it have become some of the most hotly debated issues by policymakers and researchers alike. Against this background, the objective of this paper is two-fold.

First, we show why policymakers need to focus on the poor and the middle class. Earlier IMF work has shown that income inequality matters for growth and its sustainability. Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20% (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels.

Second, we investigate what explains the divergent trends in inequality developments across advanced economies and EMDCs, with a particular focus on the poor and the middle class. While most existing studies have focused on advanced countries and looked at the drivers of the Gini coefficient and the income of the rich, this study explores a more diverse group of countries and pays particular attention to the income shares of the poor and the middle class—the main engines of growth.

it’s going downhill fast now.

• China’s Stocks Hit Critical Low Despite Government Lifelines (SCMP)

A series of lifelines from Beijing failed to stop the slide in the mainland’s stock market on Thursday, with the key Shanghai Composite Index closing below the critical 4,000 mark for the first time in almost three months. Analysts warned that the nation’s leadership would pay dearly if it failed to stabilise the market and prevent millions of small investors from losing their life savings. “The government’s response to the fall confirms that it will use all the resources at its disposal to influence the market when things do not go the way it wants and potentially puts its legitimacy at risk,” said Steve Tsang, chair of the School of Contemporary Chinese Studies at the University of Nottingham.

The China Securities Regulatory Commission said last night that the stock market had recorded a significant drop, and the commission would launch an investigation into suspected market manipulation. Those suspected of committing an offence would be handed over to public security agencies. The Shanghai Composite Index fell as much as 6.38% at one point in the afternoon session, before finishing down 3.48%, or 140.93 points, at 3,912.77, the lowest level since April 9. The Shenzhen Composite Index shed 5.55%, or 130.32 points, to close at 2,215.81 and ChiNext – the Nasdaq-style bourse for small-cap tech stocks – gave up 4%. Since falling off a seven-year peak of 5,166.35 on June 12, the Shanghai index has lost about a quarter of its value, with the mainland equity markets heading into bear territory after fears of a tightening of margin lending induced a sharp correction.

No kidding.

• China’s Boom Has World Bank Worried (Pesek)

The World Bank has a timely warning for Chinese President Xi Jinping: Don’t let all that money go to your head. The global lender didn’t refer directly to Shanghai’s stock boom or the Asian Infrastructure Investment Bank (Beijing’s attempt to develop a World Bank of its own). Nor did it have to. By urging Beijing to clamp down on wasteful investment, unsustainable debt, and a shadow banking industry run amok, it was delivering a clear enough warning that President Xi should stop fanning China’s giant asset bubble. The World Bank was also implying China should get its own economic house in order before trying to change the global economy. “China has reached a critical phase of its economic and social development path,” the lender said in a new report released Wednesday.

The economy “will need to be transformed to increase the efficiency of new investments and widen access to finance, enabling China to sustain solid growth and rebalance its economy.” The World Bank’s admonishment was amplified by a fascinating milestone the Chinese economy reached this week — one that presents Xi’s government with a complicated image problem. China’s 90 million mainland stock traders now outnumber its 87.8 million Communist Party members. This changing of the guard, if you will, is taking place the same week the party celebrated its 94th anniversary – hardly what Mao Zedong had in mind when he led the Communists to power in 1949. In truth, China’s fast-growing legions of stock traders are betting on a type of financial Communism.

Everyone knows the Chinese economy is slowing and deflation is approaching, but markets have generally stayed aloft amid perceptions Xi will use the full power of the state to protect investments. Along with weekend interest-rate cuts, authorities have just made it easier to take on even more leverage. Brokerages now have leeway to boost lending by about $300 billion. Yet recent stock market declines suggest those steps aren’t working their usual magic. Part of the problem is traders have realized nobody is shoring up the shaky pillars of the world’s second-biggest economy. As that awareness sinks in, the 24% decline in the Shanghai Composite Index from its June 12 peak (which wiped out more than the equivalent of Brazil’s annual output) will only intensify. So will the headwinds bearing down on the broader economy as plunging shares dent business and household confidence.

It lost the entire German stock market value too. Though people put up their homes as collateral.

• Chinese Stocks Just Lost 10 Times Greece’s GDP

As Europeans hold their breath awaiting a referendum that will help determine Greece’s future in the euro zone, a stock market slump on the other side of the world is causing barely a ripple in global markets. A dizzying three-week plunge in Chinese equities has wiped out $2.36 trillion in market value — equivalent to about 10 times Greece’s gross domestic product last year. Still, the closed nature of China’s financial markets is allowing the rest of the world to watch in wonder without seeing spillovers into their markets…yet. “What happens in China will turn out to be far more consequential than any sting that Greece may deliver over the coming weeks or months,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong.

“As China’s equity markets lose their roar, the risk is that demand more broadly on the Mainland could take a hit. That would knock out an essential engine of world demand over the past decade. As dramatic as events in Greece currently appear, however, ultimately, it’s difficult to see these proving decisive for the world economy.” For now, even within China, economists find it tough to draw a link between its retail-driven stock market swings and the economy. A recent survey by Bloomberg shows analysts split on whether a rout would have any decisive effect on growth. One thing to note: With China opening its capital borders, roller-coaster rides on its stock market will have increasing repercussions for investors from London to New York and Tokyo. But that’s farther out in the future than the more immediate concerns in Greece.

Betting on one horse. Or cow, rather.

• Top Economist Warns Of New Zealand Recession Risk (NZ Herald)

So much for the rock star economy. As dairy prices continue to slump and business confidence tapers off, a leading economist is warning that a “scenario where a recession becomes imminent” isn’t difficult to imagine. BNZ head of research Stephen Toplis said the biggest shock to New Zealand’s economy had been the ongoing demise of the dairy sector. The price of whole milk powder – which is responsible for about 75% of Fonterra’s farmgate milk price – plunged 10.8% to US$2054 a tonne at the latest GlobalDairyTrade auction this week. The overall index fell 5.9% to record its ninth consecutive decline, driving the New Zealand dollar to a fresh five-year low of US66.59c last night.

Economists are now picking the Reserve Bank to cut the official cash rate back to 2.5% (from 3.25% currently) in a complete reversal of a rate tightening cycle that began in early 2014. BNZ this week lowered its 2015/16 milk price forecast to $5.20kg from $5.70 previously. “In part, the demise of dairy will be having an impact on economy-wide confidence, such as reflected in the recently released ANZ [business confidence] survey,” Toplis said. “In turn these confidence readings are also useful in predicting future GDP [gross domestic product] growth. Unfortunately, the trend in confidence is down.” BNZ is forecasting annual average growth this year of 2.4%, falling to 2.1% over 2016 and 2017.

“That said, the balance of risks around our forecast is becoming more skewed to the downside,” Toplis said. “Indeed, so much so that it is not hard to envisage a scenario where a recession becomes imminent.”

At least someone tried to do something.

• Benjamin Lawsky’s Legacy (NY Times)

After four years on the job, Benjamin Lawsky, New York’s top financial regulator, stepped down in June. His legacy includes important protections against abusive debt collectors and usurious payday lenders, as well as aggressive enforcement actions against banks and financial firms for money laundering, currency manipulation, interest rate rigging, foreclosure abuses and insurance scams. He has also left Gov. Andrew Cuomo with a moment-of-truth decision. Will Mr. Cuomo appoint a replacement to build on Mr. Lawsky’s legacy or to tone it down? In 2011, Mr. Cuomo merged New York’s bank and insurance agencies into a single agency with expanded regulatory powers. The question at the time was whether the newly created Department of Financial Services would be a political tool — a way for Mr. Cuomo to impinge on the power of the state attorney general — or a true financial regulator.

The answer has been the latter, thanks largely to Mr. Cuomo’s choice of Mr. Lawsky, a onetime Democratic aide and former federal prosecutor, to run the department. But some of the names that are circulating as possible contenders for Mr. Lawsky’s job suggest that this time around, Mr. Cuomo is looking for a light regulatory touch. In addition to lawyers who have spent much of their careers representing and defending corporate clients, it also reportedly includes a former JPMorgan Chase executive. Mr. Lawsky’s tenure — and much of the regulatory history before and since the financial crisis — has disproved the notion that financial-industry professionals are uniquely qualified to regulate banks and financial firms. In fact, regulators from industry have been linked to rulemaking delays and regulatory capture, which occurs when a regulatory agency advances the interests of the industry it is charged with overseeing rather than the public interest.

To avoid those pitfalls, Mr. Cuomo should choose Mr. Lawsky’s successor from the nation’s ranks of prosecutors, legal and consumer advocates or federal or state officials who have shown an aggressive streak toward Wall Street. The choice comes at a crucial time. As memories of the financial crisis fade, banks have increasingly argued that regulation has become too heavy. They expect politicians to respond by easing up on regulatory efforts. That would be a mistake. Regulation today needs to be vigilant for continuation of behaviors from the crisis years and for developments that may portend the next crisis. Mr. Lawsky has left the Department of Financial Services in a position of strength. It is up to Mr. Cuomo to keep it strong.

“..rates “simply can’t rise without causing deleveraging and a crash”.

• Arise Steve Keen, Forecaster Of The Year (SMH)

What was it Jesus said about a prophet being accepted everywhere but in his home town? Australian expatriate Steve Keen was by far the most successful of last year’s BusinessDay economic forecasters. He did it by being the most pessimistic of the 25, but hardly ever too pessimistic. None of the others thought our terms of trade would collapse by more than a few%. Keen picked 10%. We got 12.25%. The pay cut rocked the budget deficit, but not by as much as most predicted. Keen went for $40 billion. The budget papers say it’ll be $41.1 billion. Wage growth slipped to a new low of just 2.3%. Most of the panel couldn’t see it coming, many going for 3% or more. Only Keen and also University of Newcastle economist Bill Mitchell picked 2%.

Tom Skladzien, of the Australian Manufacturing Workers Union, deserves an honourable mention as well. With his ear to the ground he picked 2.5%. The Reserve Bank cut its cash rate twice in response to the slide in national income. None of the bank economists expected it. Only Keen and Mitchell went for a cut, to 2.25%. The lower rates spurred a sharemarket boom which pushed the S&P/ASX 200 to near 6000 in February before it fell back in May and June to close not too far from where it started at 5459. Keen picked 5500 – far closer than the much higher forecasts of the panellists who didn’t see the interest rate cuts coming. On the bond market the economists employed by banks embarrassed themselves.

Instead of climbing as they all expected, Australia’s 10-year bond rate slid to an all-time low before edging back up to 3.01. Keen picked 3.5%, the only forecast anywhere near reality. He says he takes private debt seriously unlike others who treat it as largely irrelevant to economic outcomes, a “consenting act between adults”. Given the historically unprecedented levels of private debt worldwide, rates “simply can’t rise without causing deleveraging and a crash”. Keen can rightly claim to have foreseen the events in the US which led to the global financial crisis and to have wrongly picked a collapse in Australian house prices in its wake, famously losing a bet and walking from Canberra to Mount Kosciuszko wearing a T-shirt that said: “I was hopelessly wrong about house prices, ask me how.”

Unwanted by the University of Western Sydney, he was snapped by Kingston University in London where he is gaining a reputation as one of Europe’s leading economic thinkers. He didn’t get it all right this year. Mitchell (another non-orthodox economist) was more accurate about economic growth, and almost everyone was more accurate about the US economy, expecting something closer to 3 per cent growth than the 1 per cent Keen forecasted. But Keen is doubling down and predicting 1 per cent again this year. There’s a chance he knows what he is doing. It’s the third time he has won the title of BusinessDay forecaster of the year.

Debt Rattle May 9 2015

May 092015

May 9, 2015 Posted by Raúl Ilargi Meijer at 11:07 am Finance Tagged with: Banks, betrayal, crash, deflation, democracy, jobs, pensions, spying, volatility 11 Responses »

Arthur Rothstein Steam shovels on flatcars, Cherokee County, Kansas 1936

• Wall Street Soars On Hopes Of Fed Reprieve, Yet Sting In The Tail (AEP)

• Wall Street Is One Sick Puppy (David Stockman)

• Currencies’ Wild Ride to Get Wilder as US Rate Rise Beckons (Bloomberg)

• Low Productivity Alarms US Policy Makers (FT)

• Countdown To The Stock-Market Crash Of 2016 Is Ticking Louder (Paul B. Farrell)

• ‘Good’ Jobs Report? 15 Million Unemployed People Want To Work (MarketWatch)

• UK Braces for Battle Over Europe After Cameron’s Victory (Bloomberg)

• The $364 Billion Real Estate Threat Inside China’s Biggest Banks (Bloomberg)

• Deflation Works! (Bill Bonner)

• Documents Distributed by Greece’s Varoufakis ‘Baffle’ Eurozone Officials (WSJ)

• Illinois Supreme Court Strikes Down Law to Rein in Public Sector Pensions (WSJ)

• Democracy Is A Religion That Has Failed The Poor (Guardian)

• Petrobras: The Betrayal of Brazil (Bloomberg)

• The Clintons and Their Banker Friends- The Wall Street Connection (Nomi Prins)

• Germany Spies, US Denies (Bloomberg)

• Trans-Pacific Partnership Will Lead To A Global Race To The Bottom (Guardian)

• Is There Such A Thing As A Skyscraper Curse? (Economist, March 28)

• Global Crime Syndicates Are Buying Expensive Australia Real Estate (Domain)

• Australian PM Adviser Exposes Cimate Change As Hoax, Shames All of Science (SBS)

“Markets keep treating weak data as “good news” (because it delays Fed tightening), but there comes a point when the macro-economic malaise does so much damage to earnings that reality catches up.”

• Wall Street Soars On Hopes Of Fed Reprieve, Yet Sting In The Tail (AEP)

Pay packets have fallen across the gamut of US industry, manufacturing, and trade over the last two months, greatly reducing the likelihood of any rise in interest rates by the US Federal Reserve until later this year. The Dow Jones index of stocks soared by 260 points to 18,186 in early trading after the US non-farm payrolls report for April revealed that wage pressures remain all but dead in the American labour market. Contracts on the futures markets immediately pushed out the first rate rise for several months, pricing in a 51pc chance of ‘lift-off’ in December. The long-feared inflexion point for the global monetary cycle may have been delayed once again. Emerging market equities rallied strongly on hopes of another six-month reprieve for dollar debtors across the world.

Companies and state entities outside the US have borrowed a record $9 trillion in dollars, leaving them acutely vulnerable to a currency “margin call” triggered by Fed tightening. This dollar leverage has jumped from $2 trillion fourteen years ago. It is heavily concentrated in Brazil, Russia, South Africa, Turkey, China and the rest of emerging Asia. The US generated 223,000 jobs in April and the unemployment rate fell to a 7-year low of 5.4pc, yet the underlying trend remains disappointingly weak. Both overtime and the number of hours worked edged down. The jobs figure for March was revised down sharply to 85,000. The labour participation rate for men is still stuck at 69.4pc, six percentage points lower than it was fifteen years ago and the lowest level since modern data began after WWII.

Had it not been for a surge in pay for financial services – the spill-over from an increasingly frothy asset boom – overall weekly earnings would have dropped for a second month in a row. It is unclear how the Fed will respond this soggy data. Dennis Lockhart, head of the Atlanta Fed, remained hawkish this week, insisting that the economy would soon return to growth rates of 2.5pc to 3pc after grinding to halt in the first quarter. He warned that a rate rise in June was still “in play”, contrary to market assumptions. “I’m still of the view that the conditions will be appropriate in the middle of the year, which we are getting closer to,” he said. Yet the US economy has not yet recovered from a winter shock.

Mr Lockhart’s own advance indicator – the Atlanta Fed’s GDPNow series – suggests that growth has been running at a pace of just 0.8pc in the five weeks to early May. It is below the Fed’s stall speed gauge. China’s exports fell 6.9pc in April from a year earlier and remain shockingly weak. The eurozone’s retail sales unexpectedly slid 0.8pc in March, and Germany’s index of core industrial orders has turned negative. Markets keep treating weak data as “good news” (because it delays Fed tightening), but there comes a point when the macro-economic malaise does so much damage to earnings that reality catches up.

“..the number of full-time jobs dropped by 252,000 in April – hardly an endorsement of the awesomeness theme.”

• Wall Street Is One Sick Puppy (David Stockman)

The robo-traders – both the silicon and carbon based varieties – were raging again today in celebration of a “goldilocks” jobs report. That is, the headline number for April was purportedly strong enough to sustain the “all is awesome” meme, while the sharp downward revision for March to only 85,000 new jobs will allegedly enable the Fed to kick-the-can yet again – this time until its September meeting. As one Cool-Aid drinker put it, ‘“Probably best scenario in which the market was hoping for growth but not (so strong) that the Fed needs to hike in June,” said Ryan Larson at RBC Global Asset Management.’ Today’s knee jerk rip, of course, is the fifth one of roughly this magnitude since February 20th, but its all been for naught.

The headline based rips have not been able to levitate the S&P 500 for nearly three months now.In fact, however, the incoming data since February 20 has been uniformly bad. The chop depicted in the graph, therefore, only underscores that the market is desperately churning as it attempts to sustain an irrationally exuberant high. Indeed, today’s jobs data was not bullish in the slightest once you get below the headline. Specifically, the number of full-time jobs dropped by 252,000 in April – hardly an endorsement of the awesomeness theme. True enough, the monthly number for this important metric bounces around considerably. Yet that’s exactly why the algo fevers stirred by the incoming data headlines are just one more piece of evidence that the stock market is completely broken.

What counts is not the headline, but the trend; and when it comes to full time jobs there are still 1.1 million fewer now than at the pre-crisis peak in Q4 2007. Needless to say, a net shrinkage of full-time jobs after seven and one-half years is not exactly something that merits a 20.5X multiple on the S&P 500 or 75X on the Russell 2000. That’s the case especially when that same flat lining jobs trend has been underway for nearly a decade and one-half. To wit, since April 2000 the BLS’ full time job count has grown at only 0.35% annually. Now how in the world do you capitalize earnings at a rate which implies gangbusters growth of output and profits as far as the eye can see, when the US economy is self-evidently trapped in a deep rut that represents a drastic downshift from all prior history?

Rollercoaster ahead.

• Currencies’ Wild Ride to Get Wilder as US Rate Rise Beckons (Bloomberg)

If you thought the past week in the foreign-exchange market was wild, you haven’t seen anything yet. That’s the outlook from investors and strategists ranging from State Street Global Advisors to Cambridge Global Payments after price swings in the euro versus the dollar approached the highest level in more than three years. Volatility surged as traders unwound bets for gains in European bonds and stocks that had been funded in euros, prompting demand for the shared currency to close out what are known as carry trades. Price swings accelerated Friday after a lackluster U.S. employment report, raising more questions than answers about the timing of Federal Reserve interest-rate increases. “This unusual backdrop is going to create some turmoil,” Dan Farley at State Street.

“The next several weeks are likely to be choppy as things continue to be absorbed, bouncing off the good and the bad news.” The euro’s one-month implied volatility jumped as high as 13.2%, inching toward the 14% level where it last closed in December 2011. The common currency was unchanged on the week at $1.1199 as of 5 p.m. on Friday in New York. The Bloomberg Dollar Spot Index slid 0.7%, falling a fourth week in its longest run of declines since October 2013. The greenback weakened 0.3% to 119.76 yen. Europe’s bond rout wiped more than $400 billion from the value of the region’s debt in the past two weeks as investors questioned whether the ECB will continue its program of asset purchases through September 2016 amid signs the region’s economy is picking up.

The selloff eroded the premium Treasuries pay over bunds to the narrowest since February, lessening the attractiveness of dollar-denominated assets. “You’re going to see continued volatility driven by the bond markets,” said Karl Schamotta at Cambridge Global Payments in Toronto. “Investors are increasingly concerned that they could be caught in the exits when everyone rushes out of the theater.”

Apparently these people find it hard to see what’s wrong.

• Low Productivity Alarms US Policy Makers (FT)

US innovators claim they have never been busier, but their ideas are persistently failing to transform the country’s economic data. Labour productivity fell an annual 1.9% in the first three months of the year, while unit labour costs rose sharply, official figures showed on Wednesday. The output per hour figures came as the country’s gross domestic product barely grew during the quarter even as it added an average of nearly 200,000 jobs a month. The numbers confirm a longer-run trend of slowing productivity that is alarming policy makers and complicating Federal Reserve decision-making. “It has slowed in quite a worrying way,” said Torsten Slok, chief international economist at Deutsche Bank.

Productivity, which measures how efficiently inputs such as labour and capital are used, evolves over years and decades. This means a single quarter’s data should not be over-interpreted — especially one that was hit by one-time factors including freezing temperatures. The first quarter dive mirrors a weather-affected first quarter in 2014. But the numbers, which follow a 2.1% annual productivity drop in the fourth quarter, confirm a broader tendency that has been mirrored in a number of advanced economies and has perplexed economists. Analysis from the San Francisco Federal Reserve shows there was a surge in US productivity between 1995 and 2003, driven by the IT boom, with growth doubling from the annualised average of 1.5% set in the 1970s, 1980s and early 1990s.

The picture then reversed, however, and the US has been stuck in a lower-productivity growth trend since. Internationally comparable figures from the Conference Board show a broader slowdown among advanced economies including the UK and Japan over recent decades. Some economists say these weak numbers are jarring given the inventiveness being displayed in sectors such as software, medicine, and advanced manufacturing, and the rapid advance of robotics. “People are saying the pace of innovation has never been higher,” says Martin Neil Baily, an economist at Brookings, the think-tank.

“2016 sounds more and more like McCain/Palin’s 2008 loss when the GOP was also deep in denial about the coming market crash..”

• Countdown To The Stock-Market Crash Of 2016 Is Ticking Louder (Paul B. Farrell)

Warning bells just keep getting louder and louder as the countdown to the Crash of 2016 keeps ticking. Wall Street’s in denial, but the Washington Post warns: “U.S. economic growth slows to 0.2%, grinding nearly to a halt.” USA Today hears “Bubble Talk” at the Vegas “Davos for Geeks.” Earlier the Wall Street Journal warned, “declining population could reduce global economic growth by 40%.” Then recently the “slow-growth Fed” was blamed. Wrong, former Fed chief Ben Bernanke counterattacked: “I’m waiting for the Journal to argue for a well-structured program of public infrastructure development, which would support growth in the near term by creating jobs and in the longer term by making our economy more productive.”

But for years the Fed “has been pretty much the only game in town as far as economic policy goes.” Today “we should be looking for a better balance between monetary and other growth-promoting policies, including fiscal policy.” Fiscal policy? No, Ben, not a chance. The GOP controls economic policy. And they will never give “growth-promoting fiscal policy” victories to President Obama and Hillary Clinton before the presidential election of 2016. Never. In spite of Bernanke’s obviously rational solution to the core problems of the American economy, one that would help the American people, the GOP will never, ever agree to fiscal stimulus programs that give the Democrats bragging rights and make Obama and Clinton look good before the elections.

The GOP is hungry for power, very hungry. They lost the presidency twice to Obama. They want it back. And now their collective ego is convinced that with the $889 million backing from the Koch Empire they can beat Hillary and take absolute control of the American democracy: win the presidency, hold Congress, gain the power to issue executive orders and veto legislation, appoint more than 6,000 insiders including cabinet officers, regulatory heads, federal judges, ambassadors, staff bureaucrats, and more. Yes, the GOP knows all that power is on the line in 2016. Listen: 2016 sounds more and more like McCain/Palin’s 2008 loss when the GOP was also deep in denial about the coming market crash. Money manager Jeremy Grantham’s predictions see beyond the Big Oil-funded GOP’s gross denial, he sees that “around the presidential election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse.”

Only 15 million out of 93 million not in labor force? So 78 million bluntly refuse to work? Hard to believe.

• ‘Good’ Jobs Report? 15 Million Unemployed People Want To Work (MarketWatch)

There is good news in the jobs market, just not enough of it. The Bureau of Labor Statistics reported Friday that the U.S. economy continued to create jobs at a healthy pace of nearly 200,000 per month in the first four months of the year, and the unemployment rate dipped to 5.4% in April, the lowest since May 2008. But we are still far from achieving an economy that offers a job for everyone who wants one. And wages are barely growing for the 148 million who do have a job. Nearly 15 million jobless people say they want to work, but the Federal Reserve seems nearly ready to declare victory, figuring that the unemployment rate can’t go much lower without setting off a harmful inflationary spiral.

There is scant evidence that tight labor markets are putting any pressure on companies to raise their prices: Unit labor costs are up just 1.1% in the past year. Inflation — no matter how you measure it — is not a risk in the near term, or even in the medium term. There’s little evidence that workers have gotten those hefty raises that economists insisted were coming any day now. Growth in average hourly earnings is stuck in the same tight range of about 2% per year that it’s been at for the past five years. In April, average hourly earnings rose only 0.1%, bringing the change over the past year to 2.2%. And the “average” wage overstates the reality for most workers.

The average is boosted by rapid pay increases for just a few, including executives, whose “salaries” include bonuses and the receipt of shares of the company’s stock or options to buy shares. The encouraging acceleration in compensation that was reported in the employment cost index last week was largely due to sales commissions and bonuses collected by only a few. Most workers aren’t seeing that 2.2% pay increase. For the median full-time worker, usual weekly earnings are up just 1.5% in the past year, far below the 4% pay raise they got the last time that the unemployment rate was as low as 5.4%. (The “median” means that half of the workers got less than a 1.5% pay raise, and half got more.)

“While the U.K. Independence Party, which campaigns for an EU exit, has only won one seat, the party won 13% of the popular vote..”

• UK Braces for Battle Over Europe After Cameron’s Victory (Bloomberg)

David Cameron persuaded U.K. voters to give him a second term as prime minister. Now he needs to persuade them to stay in the European Union. The Conservatives’ surprise win came after a campaign that saw Cameron’s pledge of a referendum on EU membership by 2017 share almost equal billing with his record of delivering economic stability. Cameron, who has said he wants the country to stay in the EU, will first seek to renegotiate Britain’s membership terms. The Conservatives “may even try and bring things forward to stop this wrecking the next two years for them,” said Tim Bale, professor of politics at Queen Mary University in London.

“It’s a very tight majority which means he will have to make promises to people and do things to keep them on board on Europe, in particular as Cameron has a record of backing down under pressure to euro skeptics.” While the pound surged on Cameron’s victory amid optimism that an economic recovery will solidify under his administration, some investors warned that the euphoria could be short lived as a EU referendum draws closer into view. The vote is intended to settle a question that’s divided the nation since the U.K. joined Europe’s common market in 1973, and split the Conservatives for a generation. “Initial short-term cheer could be followed by a medium-term chill,” said Fabrice Montagne at Barclays.

“The referendum is likely to generate a substantial amount of uncertainty, particularly if polls fail to show more substantial support for EU membership in the coming weeks and months.” With most seats declared, the BBC forecast the Tories to take 331 of Parliament’s 650 seats to Labour’s 232 seats, a result that would allow Cameron to govern alone. While the U.K. Independence Party, which campaigns for an EU exit, has only won one seat, the party won 13% of the popular vote, according to the BBC. Last year, UKIP won the most votes in elections for the European Parliament, taking almost a third of Britain’s seats.

That’s just China’s biggest four banks. “Property prices in 70 Chinese cities have fallen for more than a year..” “Loans backed by properties now comprise 40% of all facilities held by Fitch-rated banks..”

• The $364 Billion Real Estate Threat Inside China’s Biggest Banks (Bloomberg)

Fitch Ratings has called real estate the “biggest threat” to Chinese banks as surging loans tied to properties coincide with defaults and falling sales. Corporate loans backed by buildings have grown almost fivefold since 2008 and residential mortgages have more than tripled in the period among lenders rated by Fitch, the company said Friday. That’s seen property loans held by China’s four biggest lenders soar to a total 2.26 trillion yuan ($364 billion), according to their annual reports. “Collateral is supposed to reduce bank risk – but the rise of property collateral in corporate loans may actually increase the chance of bank failure,” Fitch analysts Jack Yuan and Grace Wu said in the report.

“This is because the widespread use of such collateral has lowered the perceived risks of lending, fueling China’s credit build-up and spreading real-estate risk to other sectors of the economy.” Alarm bells sounded last month when Kaisa Group Holdings Ltd. became the first Chinese developer to default on offshore bonds, putting more scrutiny on a sector that made up a third of the nation’s economy in 2013, according to Gavekal Dragonomics. Property prices in 70 Chinese cities have fallen for more than a year, the worst losing streak in at least a decade, while sales have dropped for 11 of the past 24 months, Bloomberg-compiled data show. Loans backed by properties now comprise 40% of all facilities held by Fitch-rated banks, according to the report. Total credit to real estate could be as high as 60% if other types of financing besides direct loans are included, Fitch said.

“The property market is usually one of the main revenue contributors to the state,” said Raymond Chia, the head of credit research for Asia ex-Japan at Schroder Investment Management Ltd. “With the weakness in the sector, especially with excess inventory overhang as well as weak earnings by developers, economic growth will be affected.” Industrial & Commercial Bank of China, the world’s biggest bank by assets, held 443.5 billion yuan of real estate loans, or 6.6% of all facilities, at the end of last year, according to its annual report. The portion for Bank of China, the nation’s second-largest, was 714.6 billion yuan of advances, or 8.4% of its credit book.

“Today, a long depression in the US would be unbearable. The public couldn’t stand it. Six out of ten households live paycheck to paycheck. Can you imagine what would happen if those paychecks ceased?”

• Deflation Works! (Bill Bonner)

As we have seen, Japan has already had a 25-year slump. The US is now in Year 8 of its slump, with fragile growth at only half the rate of the last century. They could get better… or worse. Negative rates could keep the cronies in business. The slump itself – combined with peak debt and 500 million Chinese laborers – could keep inflation in check. But the point comes when investors see that the risk of loss (because something can always go wrong) is greater than the hope of gain. That moment must be approaching in the US stock market. Prices are near record highs, even as the economy flirts with recession. One day, perhaps soon, we will see stocks falling – as much as 1,000 points in 24 hours. Jacking up the stock market has been the Fed’s singular success. Activism has been its creed.

Interventionism is its modus operandi. It will not sit tight as the market falls apart and the economy goes into recession. Instead, it will announce QE 4. It will try to enforce negative interest rates. And it will move – as will the Japanese – to “direct monetary funding” of government deficits. That is, it will dispense with the fiction of “borrowing” from its own central bank. It will simply print the money it needs. The US Fed of 1930 was not nearly as ambitious and assertive as the Fed of 2015. In the ‘30s, it watched as the economy chilled into a Great Depression. As Ben Bernanke told Milton Friedman, “We won’t do that again.” It couldn’t if it wanted to. Back in the ‘30s, consumer debt had barely been invented. Most people still lived on or near farms, where they could take care of themselves even if the economy was in a depression.

Few people had credit. Instead, they had savings. There were no food stamps. No disability. No rent assistance. No zombie industries. No student debt. No auto debt. No cash-back mortgages. And cash was real money, backed by gold. Today, a long depression in the US would be unbearable. The public couldn’t stand it. Six out of ten households live paycheck to paycheck. Can you imagine what would happen if those paychecks ceased? Supposedly, the US economy is still growing… with the stock market near record highs. Yet, one out of every five households in America has not a single wage-earner. Among inner-city black men, ages 20-24, only 4 out of 10 have jobs. Half the households in the US count on government money to make ends meet. And 50 million get food stamps. What would happen to the cities – and the suburbs – in a real depression?

They try to act as if Yanis were stupid, but they themselves lack understanding of the matter at hand.

• Documents Distributed by Greece’s Varoufakis ‘Baffle’ Eurozone Officials (WSJ)

Economic plans and growth estimates distributed by Greek Finance Minister Yanis Varoufakis to some of his eurozone counterparts have baffled officials involved in the talks over its international bailout. Officials say that the files differ greatly from what has been discussed at the technical level in Brussels in recent days and underline how Mr. Varoufakis continues to complicate progress toward a financing deal. The 36-page document, entitled “Greece’s recovery: A blueprint” and seen by The Wall Street Journal, was presented by Mr. Varoufakis to his counterparts in Paris and Rome, as well as senior officials in Brussels, while he was touring European capitals over the past week, according to four European officials.

The Greek Finance Ministry said the document was a first draft of a new plan “for the recovery and growth of the country in the [post-bailout] era,” which it said Mr. Varoufakis had discussed informally with some of his counterparts. “This is a long-term project that goes well beyond the limits of the negotiation that is currently underway in the Brussels Group,” as the group of experts representing Greece and its creditors is known, the ministry said. Greece’s leftist-led government is locked in negotiations with the European Union and the International Monetary Fund over its next slice of financial aid as part of a €245 billion rescue package. Disagreements over cuts to Greece’s pension system and changes to its labor rules that would make it easier to dismiss workers have held up a deal on further loans.

While the talks have become more constructive, differences remain wide, European officials say. The paper focuses on the Greek economy and how it can return to growth. “Perhaps it is time to visualize a recovering Greece before we unlock the present impasse,” the document says, before going into areas where the country plans overhauls. While some of the outlined measures are the same as those agreed to in the negotiations—such as the creation of an independent tax commissioner—the paper differs in other areas. One significant difference is the creation of a so-called bad bank that would house and wind down Greek lenders’ bad loans. “Conveniently, the financing of the bad bank is not treated,” an EU official said.

Prelude to multiple bankruptcies.

• Illinois Supreme Court Strikes Down Law to Rein in Public Sector Pensions (WSJ)

The Illinois Supreme Court struck down the state’s 2013 pension overhaul, unraveling an effort by lawmakers to rein in benefits for the consistently underfunded public-sector system. The current pension shortfall is estimated at $111 billion, one of the largest nationally. The high court affirmed a decision in November by a state circuit court that the legislative changes violated pension protections written into the state constitution. The decision is a victory for a consortium of public-sector unions while creating a huge challenge for new Republican Gov. Bruce Rauner, who already faces a yawning budget deficit for the coming fiscal year.

“The financial challenges facing state and local governments in Illinois are well known and significant,” said Justice Lloyd Karmeier, writing for the entire court. “It is our obligation, however, just as it is theirs, to ensure that the law is followed.” Illinois joins Oregon and Arizona as recent examples of high courts peeling back pension overhauls. Other states, including Colorado and Florida, have upheld laws cutting benefits. Mr. Rauner’s office urged a constitutional amendment to help fix the problem. Otherwise, the state will be forced to turn to tax increases, budget cuts or, as Mr. Rauner discussed earlier this year, municipal bankruptcy. Recent federal bankruptcy cases in Detroit and Stockton, Calif., have raised the question of whether pension benefits are fully protected.

After the ruling, Standard & Poor’s Ratings Services put the state’s credit ratings on watch for potential downgrade, saying Illinois faces “profound credit challenges.” The Illinois law would have reduced retirement costs by shrinking cost-of-living increases for retirees, raising retirement ages for younger workers, and capping the size of pensions. “The court’s ruling confirms that the Illinois Constitution ensures against the government’s unilateral diminishment or impairment of public pensions,” said Michael Carrigan, president of the Illinois ALF-CIO, speaking on behalf of the We Are One Illinois coalition of unions.

It’s not democracy, it’s what is not democracy but is still called by that name.

• Democracy Is A Religion That Has Failed The Poor (Guardian)

Right now I feel ashamed to be English. Ashamed to belong to a country that has clearly identified itself as insular, self-absorbed and apparently caring so little for the most vulnerable people among us. Why did a million people visiting food banks make such a minimal difference? Did we just vote for our own narrow concerns and sod the rest? Maybe that’s why the pollsters got it so badly wrong: we are not so much a nation of shy voters as of ashamed voters, people who want to present to the nice polling man as socially inclusive, but who, in the privacy of the booth, tick the box of our own self-interest. Rewind 24 hours and it felt so different. Thursday morning was lovely in London, full of the promise of spring. Even the spat I had with the man outside my polling station shouting at “fucking immigrants” didn’t disrupt an overall feeling of optimism.

Were people walking just a little bit more purposefully? Was I mistaken in detecting some calm excitement, almost an unspoken communal bonhomie? Perhaps also a feeling of empowerment, a sense that it was “the people” that could now make a difference. But by bedtime the spell had been broken. Things were going to stay the same. No real difference had been made. The utterly miserable thought strikes me that Russell Brand just might have been right. What difference did my vote make? Why indeed do people vote, and care so passionately about voting, particularly in constituencies in which voting one way or the other won’t make a blind bit of difference? And why do the poor vote when, by voting, they merely give legitimacy to a system that connives with their oppression and alienation?

The anthropologist Mukulika Banerjee suggests a fascinating answer: elections are like religious rituals, often devoid of rational purpose or efficacy for the individual participant, but full of symbolic meaning. They are the nearest thing the secular has to the sacred, presenting a moment of empowerment. But is this empowerment illusory? Is, as Banerjee asks, “the ability to vote … a necessary safety valve which allows for the airing of popular disaffection, but which nevertheless ultimately restores the status quo. In such a reading, elections require the complicity of all participants in a deliberate mis-recognition of the emptiness of its procedures and the lack of any significant changes which this ritual brings about, but are a necessary charade to mollify a restless electorate.”

The numbers are insane and growing. This may well make the country ungovernable.

• Petrobras: The Betrayal of Brazil (Bloomberg)

Since March 2014, prosecutors have accused more than 110 people of corruption, money laundering, and other financial crimes. Six construction and engineering firms have been accused of illegal enrichment in what is known as a noncriminal misconduct action. On April 22, Moro delivered the first convictions. He found Costa and Youssef guilty of money laundering, including the Land Rover purchase. Moro gave both men reduced sentences two years house arrest for Costa and three years in prison for Youssef for cooperating with prosecutors. All of that is something of a preview of the big show: Prosecutors say they may accuse some of Brazil s largest builders with running an illegal cartel.

It’s been clearly proven in this case that there was a criminal scheme inside Petrobras that involved a cartel, bid rigging, bribes to government officials and politicians, and money laundering, Moro wrote in sentencing Costa and Youssef. There will be a cartel indictment, says Carlos Lima, a lead prosecutor in the case. I do’ t like to get ahead of myself and say this will happen, but it will. It’s just a matter of time. In filings in Judge Moro’s court, prosecutors have named 16 companies that allegedly formed a cartel to fix Petrobras contracts between 2006 and 2014. The list includes some of Brazil s largest construction and engineering firms, including Camargo Correa, OAS, UTC Engenharia, and the biggest of them all, Construtora Norberto Odebrecht. All of these companies deny being part of a cartel, except Camargo Correa, which declined to comment.

Petrobras says it knew nothing about the bid rigging and is collaborating with authorities in the investigation. As to whether it was the victim of a cartel, the company is certain, Mario Jorge Silva, Petrobras’s executive manager for performance, said at an April 22 news conference. In financial filings, Petrobras says 199.6 billion reais worth of contracts were rigged by the alleged cartel. For years, a co-owner of the engineering firm UTC called members to meetings at his offices in Sao Paulo via text messages, according to testimony and documents submitted in Moro’s court. The participants were greeted by an assistant, who handed out name tags. At the meetings, executives took copious notes detailing how the alleged cartel would divvy up Petrobras contracts, at inflated prices. One builder put together a 2 1/2-page encoded guide for group members that describes contract bidding as a soccer tournament, with leagues and teams.

Another document drawn up by a group member lists the chosen winners of upcoming bidding for 14 contracts for a refinery, with the title Fluminense Final Bingo Proposal, using a nickname for the state of Rio de Janeiro. Prosecutors say the builders got away with it by paying kickbacks, usually 3%, on every contract. Petrobras estimates that the graft added up to at least 6.2 billion reais, much of which, prosecutors say, was funneled into the war chests of the parties that backed Luiz In·cio Lula da Silva, president of the country from 2003 to 2010, and his handpicked successor, Dilma Rousseff. Lula and Rousseff haven t been charged with wrongdoing, but special prosecutors have opened criminal investigations into more than 50 members of congress and other politicians implicated in the corruption scheme.

“..in all these years, Hillary Clinton has not publicly condemned Wall Street or any individual Wall Street leader.”

• The Clintons and Their Banker Friends- The Wall Street Connection (Nomi Prins)

The past, especially the political past, doesn’t just provide clues to the present. In the realm of the presidency and Wall Street, it provides an ongoing pathway for political-financial relationships and policies that remain a threat to the American economy going forward. When Hillary Clinton video-announced her bid for the Oval Office, she claimed she wanted to be a “champion” for the American people. Since then, she has attempted to recast herself as a populist and distance herself from some of the policies of her husband. But Bill Clinton did not become president without sharing the friendships, associations, and ideologies of the elite banking sect, nor will Hillary Clinton. Such relationships run too deep and are too longstanding.

To grasp the dangers that the Big Six banks (JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley) presently pose to the financial stability of our nation and the world, you need to understand their history in Washington, starting with the Clinton years of the 1990s. Alliances established then (not exclusively with Democrats, since bankers are bipartisan by nature) enabled these firms to become as politically powerful as they are today and to exert that power over an unprecedented amount of capital. Rest assured of one thing: their past and present CEOs will prove as critical in backing a Hillary Clinton presidency as they were in enabling her husband’s years in office.

In return, today’s titans of finance and their hordes of lobbyists, more than half of whom held prior positions in the government, exact certain requirements from Washington. They need to know that a safety net or bailout will always be available in times of emergency and that the regulatory road will be open to whatever practices they deem most profitable. Whatever her populist pitch may be in the 2016 campaign – and she will have one – note that, in all these years, Hillary Clinton has not publicly condemned Wall Street or any individual Wall Street leader. Though she may, in the heat of that campaign, raise the bad-apples or bad-situation explanation for Wall Street’s role in the financial crisis of 2007-2008, rest assured that she will not point fingers at her friends.

She will not chastise the people that pay her hundreds of thousands of dollars a pop to speak or the ones that have long shared the social circles in which she and her husband move. She is an undeniable component of the Clinton political-financial legacy that came to national fruition more than 23 years ago, which is why looking back at the history of the first Clinton presidency is likely to tell you so much about the shape and character of the possible second one.

Deepening.

• Germany Spies, US Denies (Bloomberg)

Reports of German spying on European corporate targets at the behest of the U.S. have led to calls that Chancellor Angela Merkel was hypocritical for complaining about U.S. spying on Germany. Well, yes — but the hypocrisy of politicians hardly comes as a shock. What’s more striking about the recent revelations is their targets – and what they say about U.S. government claims that it doesn’t spy on behalf of private U.S. corporations. Start with a rather obvious question: Why would the U.S. government rely on Germany to spy on European corporations? Why not just do the spying directly? It’s not as if the U.S. lacks the intelligence capacity to do it. After all, the U.S. spied directly on Merkel in the episode that made her object so strongly and publicly and hypocritically.

It’s hard to know for sure, and the answer may conceivably lie in complex interstate agreements that aren’t public. But there’s a highly plausible alternative answer, one connected to the recent history of U.S. efforts to vilify Chinese government’s industrial espionage. The U.S. may be using Germany to do industrial spying because it wants to claim that, unlike other countries, the U.S. doesn’t do spying on behalf of its corporations. In August 2013, a National Security Agency spokesman told the Washington Post in an e-mail that the Department of Defense “does ***not*** engage in economic espionage in any domain, including cyber.” In case you’re wondering, the six asterisks appeared in the original e-mail. Notice that the NSA statement didn’t say that other agencies avoid economic espionage, just those that are part of the Department of Defense.

Notice, too, that the statement didn’t say that no one shares stolen information with the U.S. The next month, after a fresh round of Edward Snowden revelations, the director of national intelligence, James Clapper, issued a further statement. He acknowledged that “the Intelligence Community” (his capitalization) “collects information about economic and financial matters.” But he insisted that: “What we do not do … is use our foreign intelligence capabilities to steal the trade secrets of foreign companies on behalf of – or give intelligence we collect to – U.S. companies to enhance their international competitiveness or increase their bottom line.” A close, retrospective reading of this statement reveals it to be completely consistent with the U.S. relying on foreign intelligence organizations, such as the Germans, to spy on private targets – and then share the proceeds with American companies for whatever reason.

All globalization does.

• Trans-Pacific Partnership Will Lead To A Global Race To The Bottom (Guardian)

At a time when economic inequality around the globe continues to widen, the Trans-Pacific Partnership (TPP) will only make things worse. Unlike what President Obama claims, the agreement will only encourage a race to the bottom, in which a small percentage of people get ridiculously rich while most workers around the globe stay miserably poor. We can’t let that happen. Today, President Obama is visiting Nike’s headquarters in Beaverton, Oregon to garner support for the trade deal, which would be signed by the US and 11 Pacific Rim countries. That’s an apt place for Obama to beat the free-trade drum – Nike, like the TPP, is associated with offshoring American jobs, widening the income inequality gap, and increasing the number of people making slave wages overseas.

Since the passage of NAFTA in 1993, we’ve seen the loss of nearly five million US manufacturing jobs, the closure of more than 57,000 factories, and stagnant wages. This deal won’t be any different. In November, Zachary Senn, a college student reporter at the Modesto Bee, spent three weeks in Indonesia living with and interviewing workers who make goods for Nike, Adidas, Puma and Converse. When you hear Obama talking about those “high-quality jobs,” think of RM, a 32-year-old mother who told Senn that she works 55 hours, six days a week and makes just $184 a month after 12 years at the PT Nikomas factory, a Nike subcontractor that employs 25,000 people. That’s 83 cents an hour or $2,208 a year. RM works in the sewing department and is expected to process 100 shoes an hour.

“If we don’t meet our quotas, we get yelled at”, she told Senn. “And then the quotas are piled into the next day”. Eating lunch is difficult because the food “smells bad,” and worse yet, RM said there is only one restroom, with 15 stalls, for 850 women. RM told Senn that she doesn’t want Nike to leave Indonesia; she wants an end to verbal abuse and a 50% raise, which would allow her to better provide for her family. Is $368 a month too much to ask from a multinational corporation that posted $27.8 billion in revenue and spent $3 billion on advertising and promotions in fiscal 2014? Nike CEO Mark Parker was paid $14.7 million in compensation last year. That’s $7,656 an hour. Wages in Vietnam, a key TPP partner, are even lower than Indonesia. Nike’s largest production center is in Vietnam where 330,000 mostly young women workers with no legal rights earn just 48 to 69 cents an hour.

6 weeks old, but too good to leave behind.

• Is There Such A Thing As A Skyscraper Curse? (Economist, March 28)

The world is in the middle of a skyscraper boom. Last year nearly 100 buildings over 200 metres tall were built—more than ever before. This year China’s business capital will welcome the Shanghai Tower, which will be the world’s second-tallest building. Saudi Arabia is building Kingdom Tower, which will be the world’s tallest (and twice the height of One World Trade Centre in New York, the tallest building in the Americas). Does this frenzy of building augur badly for the world economy? Various academics and pundits, many of them cited by The Economist, have long argued as much, but new research casts doubt on it.

In 1999 Andrew Lawrence, then of Dresdner Kleinwort Benson, an investment bank, identified what came to be known as the “skyscraper curse”.* Mr Lawrence noticed a curious correlation between the construction of the world’s tallest buildings and economic crises. The unveiling of the Singer Building and the Metropolitan Life Tower in New York, in 1908 and 1909 respectively, roughly coincided with the financial panic of 1907 and subsequent recession. The Empire State Building opened its doors in 1931, as the Great Depression was getting going (it was soon dubbed the “Empty State Building”). Malaysia’s Petronas Towers became the world’s tallest building in 1996, just before the Asian financial crisis. Dubai’s Burj Khalifa, currently the world’s tallest building, opened in 2010 in the middle of a local and global crash.

Skyscrapers can be hugely profitable, since by building upwards developers can rent out more floor space on a given plot of land. But at some point extra storeys are no longer a good deal, since marginal costs—for more lifts and extra steel to stop the building from swaying in the wind, for example—increase faster than marginal revenues (rents or sales). William Clark and John Kingston, an economist and an architect writing in 1930, found that the profit-maximising height for a skyscraper in midtown New York in the 1920s was no more than 63 storeys. (The ideal height is probably not much different today.) Record-breaking skyscrapers could therefore be seen as an indication that gung-ho investors are overestimating the probable future returns from new construction.

Indeed, developers may be building record-breaking towers even though they know they are economically inefficient. There is, after all, a certain cachet to having a very tall building with your name on it. In 1998 Donald Trump, a magnate, presented a plan to build the world’s tallest residential building in New York as the righting of a historical wrong, not a shrewd business move. “I’ve always thought that New York should have the tallest building in the world,” he proclaimed. If such vanity projects can secure funding, the theory goes, financial markets must be out of control and will soon suffer a sharp correction. Mr Trump’s tower opened just as the dotcom bubble was bursting.

And London, New York etc. Real estate is a great way to launder cash.

• Global Crime Syndicates Are Buying Expensive Australia Real Estate (Domain)

Some of Australia’s most expensive real estate is being bought by global crime syndicates, one of the country’s top crime-fighting bodies says. So worried are they about the influx of dirty money that the Australian Crime Commission has launched an investigation looking at money laundering and terrorism financing through property. Concerns that criminals may be targeting real estate were raised within the commission about six months ago, according to an ACC spokeswoman. The Targeting Criminal Wealth Special Investigation is expected to run until June next year. “Taskforce investigations have uncovered information about organised crime entities investing in high-value commodities, such as real estate, to help launder illicit funds into the legitimate economy,” said ACC chief executive Chris Dawson, APM.

“The Australian real estate sector is perceived as stable and at low risk of significant depreciation in the short term, and potential for growth in the long term. It is likely that organised crime are exploiting these conditions to invest in the Australian real estate market to launder the proceeds of illicit activity including drug profits.” The ACC declined to specify countries of concern because the investigation is ongoing. Parliamentary secretary to the Treasurer Kelly O’Dwyer said the federal government was being forced to play catch-up on the issue because there had been no co-ordinated data matching scheme on property records to date. The recently announced data-matching scheme set to start from December 1 as part of the federal government’s crackdown on foreign investment would be a big help to agencies like the ACC in these investigations, Ms O’Dwyer said.

Brilliant.

• Australian PM Adviser Exposes Cimate Change As Hoax, Shames All of Science (SBS)

Business Adviser Maurice Newman has been praised today for his stellar work uncovering that climate change was a hoax perpetrated by the United Nations and the vast majority of the entire scientific community from all around the world. Newman, who also managed to expose the New World Order as something that actually exists and isn’t just made up by conspiracy theorising weirdos, has been widely praised for his efforts in bringing down what is thought to be the most elaborate conspiracy of all time. “Of course he will be in consideration for the Nobel Prize,” said one science observer. “To completely humiliate the vast majority of the scientific community like this on such a huge issue is almost unprecedented.

“In years to come we’ll say Maurice Newman in the same breath as we say Albert Einstein and Isaac Newton. To think, thousands of scientists and millions upon millions of dollars of resources couldn’t uncover this conspiracy but one guy with no expertise managed to bring it all down on a lark.” The world’s scientists have reacted with abject shame at being found out after all this time. “I always knew we’d be found out,” said one scientist. “It’s only so long you can keep something like this up when you have to independently incorporate every person studying climate, sea levels, soil, and thousands of other aspects. The paper trail alone was incredibly obvious. Not to mention our connection with the United Nations meaning we had to have every nation on board with tricking Australia for some reason.

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